Cable Cuts Have Everyone Questioning the Benefits
FCC says rollback will save consumers millions; operators cry foul
VAN NUYS, CALIF. — TOM HARDAWAY was beside himself with anticipation.
The self-styled cable connoisseur - avid watcher of CNN, MTV, and HBO - describes himself as a penny-pincher who would put Jack Benny to shame. So after reading headlines last week proclaiming ``Cable Rates Cut Again: 7 percent reduction,'' he placed a call to his local distributor, Century Cable.
``We have not been informed of lower rates,'' said Bessie, Operator 289. ``Once advised, we will mail such information to our subscribers.''
For the second time in six months, federal regulators are generating hoopla with an announcement last week ordering cuts in cable-TV rates - 7 percent reductions on top of a 10 percent cut effective last September. Consumer groups are applauding and cable television associations are wincing, but the truth is nobody really knows how the new rules, expected to take effect in mid-May, will affect Mr. Hardaway's $38.50 monthly cable charge.
``I want to know when and how much I will save,'' Hardaway says. ``But I'm being told to put away my calculator.''
With a kind of here-we-go-again edginess, the nation's 11,000 cable operators share the frustration of Hardaway and other customers over what they see as fuzziness in the new price rollbacks. In announcing the cuts, Federal Communications Commission Chairman Reed Hundt said the government had finally ``broken the back of cable price increases,'' which have led to 10 percent growth a year in revenues reaching a projected $28.8 billion this year, according to the Commerce Department.
Responding to charges by the public of price gouging, monopolistic practices, and enforcement loopholes, the new FCC action could save customers $3 billion, Mr. Hundt says. ``This is the greatest consumer savings in the history of American business regulation.'' The move is expected to be backed by tougher enforcement against violators.
Within the next 30 days, the FCC will send a 500-page document to cable operators around the country. Because of the complicated ways these rules are written, and even more complex ways cable companies plug them into their fee structures, savings to individual customers may stray above and below the intended 7 percent cut.
``Just like the September cutbacks, there is going to be lots of consumer confusion for awhile,'' says George Franciscovich, an in-house lawyer for Viacom Inc. The September story made headlines when about 30 percent of the nation's 57 million cable customers saw their bills increase, rather than decrease.
Meanwhile, cable companies across the country are making sure the public hears of their claim that the cutbacks will damage everything from service to plans for upgrades in equipment, and from research and development to the speed with which consumers get access to the Information Superhighway.
``This is going to have a disastrous effect on our capital expenditures and makes our future very uncertain,'' says Marc Nathanson, head of Los Angeles-based Falcon Cable, California's largest cable operator. Falcon Cable has 100,000 customers in 29 states. Mr. Nathanson says that because the September rollback rules were not written clearly enough, the public outcry has resulted in an additional attempt to unfairly slap the wrists of cable operators.
``If the government wants us to progress and grow and provide more and better services to the public, this is not the way to do it,'' Nathanson says. The new cutbacks jeopardize Falcon Cable's goal of doubling the number of channels offered to its customers by 1998, he adds.
The measure also was ``unquestionably'' behind the failed merger of Bell Atlantic Corporation and Tele-Communications Inc. last week, he says, because it created investor uncertainty over how cable operators could profit and grow.
Despite what they call public posturing by companies wanting to strengthen their future negotiating position, analysts say all companies will not be affected equally.
``This will affect companies unevenly depending on their size,'' says Richard Oliver, a researcher at the Owen Graduate School of Management at Vanderbilt University in Nashville, Tenn. Because of slimmer profit margins, and the continued pressure to invest in fiber-optic delivery systems, smaller companies will be hit harder or fail altogether.
``We think the timing is very unfair and unfortunate,'' says Dan Ballister, a spokesman for Time Warner Cable in San Diego. Only ``12 or 13'' complaints have come from his system's 130,000 customers, which does not fit the FCC's description of a ``public outcry over price gouging,'' Mr. Ballister says.
This action ``puts us at a disadvantage in moving toward planned upgrades in recessionary times when financing is tough,'' Ballister adds.