Cable Television: Background and Overview of Rates and Other Issues for Congress

Cable Television: Background and Overview
of Rates and Other Issues for Congress
Updated April 25, 2007
Julie Jennings
Information Research Specialist
Knowledge Services Group

Cable Television: Background and Overview of Rates
and Other Issues for Congress
Summary
Cable television is one of the oldest and most popular distribution technologies
used to deliver video programming to consumers. It uses fixed coaxial or fiber-optic
cables to accomplish delivery. Of the various other methods used to deliver video,
only direct broadcast satellite (DBS) successfully competes with cable. It uses
communications satellites to deliver signals to individual consumers. In 2005, cable
television was received by 65.4 million homes, or approximately 69% of all pay
television subscribers. In comparison, DBS was received by 26.1 million homes, or
approximately 27.7% of all television subscribers. This report presents information
on the history of federal regulation of the cable television industry and background
information on cable rates and other cable industry issues. The DBS industry, cable’s
main competitor, is not addressed extensively in this report. The
Telecommunications Act of 1996, 110 Stat. 56, P.L. 104-104, eliminated most cable
rate regulation beyond the basic tier of services as of March 31, 1999. Some small
cable operators were freed from regulation upon the enactment of the law, but in
most cases, rates for a basic tier of services continue to be regulated. The
Telecommunications Act also opened up new areas of competition between
telephone companies and cable companies. This report will be updated as legislation
or news events warrant.

Contents
History of Cable Rate Regulation.....................................1
Current Cable Rate Issues...........................................2
The Current Cable Market...........................................3
Top Cable and DBS Systems.........................................4
Program Access Rules..............................................4
Broadband Cable Modem Service ....................................5
Additional Resources...............................................6
Selected Online Resources.......................................6
Selected CRS Products.........................................7
List of Tables
Table 1. Annual Cable Rates Data.....................................3
Table 2. Top 10 Multiple System Operators.............................4

Cable Television: Background and Overview
of Rates and Other Issues for Congress
History of Cable Rate Regulation
The Cable Communications Policy Act of 1984, 98 Stat. 2779, P.L. 98-549,
established for the first time a national regulatory policy concerning cable television
communications. The act established a comprehensive cable regulatory scheme,
delineating regulatory authority among the federal, state, and local levels. Increasing
cable service rates and customer service complaints, however, prompted Congress
to revisit the law as local authorities and consumer groups lobbied for new
legislation.
On October 5, 1992, Congress passed the Cable Television Consumer
Protection and Competition Act of 1992, 106 Stat. 1460, P.L. 102-385. This law
addressed such issues as cable rates, must-carry rules, retransmission consent,
program access, franchising authority, service standards, and more. Promulgation of
regulations required by the 1992 act was done by the Federal Communications
Commission (FCC). The regulations were completed in stages, according to dates
set by the act.
The FCC’s first set of cable rate rules implementing this act went into effect
September 1, 1993. The FCC expected, on average, a 10% reduction in overall cable
bills. However, “on average” did not mean that all rates decreased 10%, or even that
all rates decreased. One reason was that all cable systems did not charge rates that the
FCC determined to be “unreasonable.” Some rates increased, and Congress and the
FCC decided to address the issue of rate hikes.
After conducting a review of cable rates following issuance of its 1993 rate
regulations, the FCC decided to revisit this issue. On March 30, 1994, the FCC
issued rules for a second round of cable rate regulations. These new rules were
intended to cut cable rates, on average, an additional 7%. No predictions were made
estimating the number of cable subscribers who would see further reductions in their
cable bills. The new rules took effect on May 15, 1994.
The Telecommunications Act of 1996, 110 Stat. 115, P.L. 104-104, was passed
by the 104^th Congress in February 1996. This act eliminated most cable television
rate regulations beyond the basic tier as of March 31, 1999. In most cases, rates for
a basic tier of services (defined as the tier that includes “over the air” broadcast
stations) continues to be regulated either by local franchising authorities (LFAs) or
state authorities. Most small cable operators (those serving less than 1% of all cable
subscribers and having no affiliation with any company whose gross annual revenues
exceed $250 million) were freed from rate regulation immediately. The FCC

continues to monitor cable rate activity and issues an annual report on cable industry
prices and one on competition in video markets.
Current Cable Rate Issues
According to the 2005 FCC Annual Report on Cable Industry Prices,¹ released
in December 2006, the overall average monthly price for basic-plus-expanded basic
cable service increased by 5.2% from $40.91 to $43.04 over the 12-month period
ending January 1, 2005. Industry statistics on cable rates vary slightly from FCC
statistics (see below), but cable companies in recent years have stated that sharply
rising costs of obtaining sports and entertainment programming coupled with system
upgrades caused them to increase rates for subscribers.²
Ongoing consumer concerns about rate increases for subscription television
prompted Congress to mandate a General Accounting Office (GAO, now the
Government Accountability Office) study of cable rates released in October 2003.
In its report, Telecommunications: Issues Related to Competition and Subscriber
Rates in the Cable Television Industry,³ GAO sought to examine the impact of
competition on cable rates, assess the reliability of information contained in the
annual FCC report on cable industry prices, and examine the causes of recent cable
rate increases. In surveys of the industry conducted by GAO for its report, GAO
concluded that the annual FCC report did not appear to provide a reliable source of
information on the cost factors underlying rate increases or on the effects of
competition, most notably costs associated with upgrading equipment and services.
GAO recommended that FCC take steps to improve the reliability of data in its
report. GAO also found that several key factors, including a 34% average increase
in programing costs incurred by cable operators during the past three years —
specifically a 59% average increase in sports programing costs — and cost increases
from system upgrades have put upward pressure on operators to raise rates to their
customers. The GAO report also discussed the option of converting cable system
pricing to à la carte (per channel) pricing instead of the current tiered system. It
noted that despite the customer benefit of greater choice, à la carte pricing could
impose additional equipment costs on the customer and alter the current economics
of the industry, especially how cable providers generate advertising revenues.

¹ U.S. Federal Communications Commission, 2005 Annual Report on Cable Industry Prices,
December 27, 2006, FCC 06-179. The 2005 report and previous years’ reports are available
at [http://www.fcc.gov/mb/csrptpg.html].
² The FCC uses surveys of average monthly rates for cable programming services at the
basic service tier (BST) and the cable program service tier (CPST), also known as
“expanded basic,” as noted in the 2002 FCC Annual Report on Cable Industry Prices.
³ Telecommunications: Issues Related to Competition and Subscriber Rates in the Cable
Television Industry, GAO-04-8, October 10, 2003. Available at
[ h t t p : / / www.ga o.gov/ n ew.i t e ms / d048.pdf ]

Table 1. Annual Cable Rates Data
(average monthly “expanded basic” rate)
2006 $41.17 1997 $26.48
2005 $39.96 1996 $24.41
2004 $38.23 1995 $23.07
2003 $36.59 1994 $21.62
2002 $34.52 1993 $19.39
2001 $31.58 1992 $19.08
2000 $30.37 1991 $18.10
1999 $28.92 1990 $16.78
1998 $27.81 1989 $15.21
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The Current Cable Market
According to the FCC’s Twelfth Annual Report on Competition in Video
Markets, released in March 2006,⁴ approximately 65.4 million homes in the United
States, or 69.4% of all Multichannel Video Program Distributor (MVPD) television
homes, subscribed to cable television as of June 2004. As defined by the FCC, an
MVPD distributor is “an entity engaged in the business of making available for
purchase, by subscribers or customers, multiple channels of video programming.”⁵
Such entities include cable operators, direct broadcast satellite (DBS) services, and
— in much smaller numbers — subscribers to five other technologies that deliver
programming. Subscriptions to DBS in recent years have increased rapidly. As of
June 2005, DBS subscribers numbered more than 26.1 million, or 27.7% of all
MVPD subscribers. MVPD (cable and noncable) subscribers total approximately 94

⁴ The FCC Twelfth Annual Report on Competition in Video Markets as well as previous
years’ reports and current and previous years of the aforementioned FCC reports on cable
industry prices are available at [http://www.fcc.gov/mb/csrptpg.html].
⁵ See 47 C.F.R. § 76.1000(e) for definition of MVPDs.

million homes.⁶ The other five technologies (MMDS, HSD, PCO, BSP, and OVS)
represent the approximately 2.9% of remaining MVPD subscribers.
As a result of the Telecommunications Act of 1996, telephone companies can
provide video services in direct competition with the local cable television company
and in certain cases may merge with the local cable company. Cable television
companies are also able to offer local phone service and broadband Internet services
(including such services as “Voice Over Internet protocol” [VoIP]). Although
individual consumers will presumably have more choices as a result of competition
in the developing communications market, particularly from satellite services such
as DBS, forecasts of what will happen in this new and complex environment are
conflicting and uncertain.
Top Cable and DBS Systems
Table 2. Top 10 Multiple System Operators
(by number of subscribers)

1. Comcast (21.4 million)6. Cox (5.4 million)

2. DirecTV (15.3 million)7. Adelphia (4.8 million)

3. Echostar Comm. Corp. (Dish8. Cablevision (3 million)

Network) (12.2 million)9. Bright House (2.2 million)

4. Time Warner Cable (11.0 million)10. Mediacom (1.4 million)

5. Charter (5.9 million)

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^&^C^abl^{e Y}^e^ar^{book 2007.}
Program Access Rules
Many providers of cable television programming are owned by or affiliated with
cable television operators. Concerns that such programmers may only provide their
programming to their corporate affiliates prompted Congress to approve a provision
in the Cable Act of 1992 addressing “program access” concerns. Program access
provisions prevent the use of exclusive contracts between cable operators and their
affiliated programmers for satellite delivered programing. The FCC was instructed
in the statute to reexamine the continuing need for the prohibition after it had been
in effect for 10 years.
The prohibition was set to expire on October 5, 2002, but the FCC issued a
Report and Order on June 13, 2002, extending for five years (until 2007) the statutory
prohibition. The FCC found that the prohibition continues to be necessary to

⁶ Twelfth Annual Report on Video Competition, Appendix B, Table B-1, “Assessment of
Competing Technologies.” This report is available at [http://hraunfoss.fcc.gov/edocs_public/
attachmatch/FCC-06-11A1.pdf ]

preserve and protect competition and diversity in the distribution of video
programming.⁷
Broadband Cable Modem Service
Broadband or high-speed Internet services can be offered through a series of
technologies including cable, digital subscriber lines (DSL) provided by telephone
carriers, satellite television, fixed wireless, and others. Cable television companies
offer broadband services via a cable modem. Classifying broadband cable service
as an “information service,” a “telecommunications service,” or as a combination of
the two has important regulatory implications. Generally, classification as an
information service would subject cable broadband services to minimal federal
regulation and no requirement that they provide open access to their systems to
competing Internet Service Providers (ISPs). Classification as a telecommunications
service could subject cable broadband services to common carrier regulation and
could require provision of open access to competing ISPs. Recently, the courts and
the FCC have come to different conclusions regarding classification of these services.
In a ruling on March 14, 2002, the FCC ruled that cable modem service is
properly classified as an interstate information service. The ruling further determined
that cable modem service is not a “cable service” and that cable modem service does
not contain a separate “telecommunications service” and is not subject to common⁸
carrier regulation (the rules that govern telephone providers).
However, in an opinion filed on October 6, 2003, the United States Court of
Appeals for the Ninth Circuit came to a different conclusion regarding the
classification of cable modem services. The court ruled in Brand X Internet Service
v. FCC that cable modem services are legally in part a telecommunications service,
which could lead to the requirement that cable operators open their lines to
competing Internet service providers.⁹ This decision vacated in part the FCC March
2002 declaratory order, which classified cable modem service as exclusively an
information service free from the rules of access governing telecommunications
services. The FCC appealed the Ninth Circuit’s decision, but the appeals court
denied the FCC’s petition for a full court review on March 31, 2004. The FCC and
the Solicitor General of the United States then filed an appeal with the U.S. Supreme
Court.

⁷ A copy of the ruling is available on the FCC website at [http://hraunfoss.fcc.gov/
edocs_public/attachma tch/FCC-02-176A1.pdf].
⁸ A news release summarizing the FCC decision is available on the FCC website at
[http://ftp.fcc.gov/ Bureaus/Cabl e/News _Releases/2002/nrcb0201.html ].
⁹ See Brand X Internet Service v. FCC, 345 F. 3d 1120 (2003). The decision can be found
at [http://www.law.cornell.edu/supct/html/04-277.ZO.html].

On June 27, 2005, the high court overturned the Ninth Circuit’s decision, ruling
that cable companies do not have to open their lines to ISPs. In the 6-3 decision,¹⁰
the court basically supported the FCC’s decision to classify cable modem service as
an information service.
Additional Resources
Selected Online Resources
U.S. Federal Communications Commission. “Regulation of Cable TV Rates.” FCC
Consumer Facts. September 2006.
[ h ttp://www.fcc.gov/cgb/consum erfacts/cablerates.html] .
This two-page fact sheet provides brief information on state and local franchising
authorities’ cable television responsibilities, including the regulation of rates for
basic service tiers.
——. “Choosing Cable Channels.” FCC Consumer Facts. December 2006.
[ h ttp://www.fcc.gov/cgb/consum erfacts/cablechannels.html] .
This two-page fact sheet explains how cable channels are packaged and
distributed to consumers. It includes a brief description of tiers, “a la carte,” and
pay-per-view programming.
——. “General Information on Cable TV and Its Regulation.” Fact Sheet. June

2000. [http://www.fcc.gov/mb/facts/csgen.html].

This extensive fact sheet presents background information on the history and
evolution of the cable industry in the United States, including the evolution of
parts of the Communications Act of 1934 that affect cable television, discussion
of issues such as must-carry regulations, and information on the regulation of
cable television by state and local authorities, including local franchising
authority agreements and customer service guidelines. Additional fact sheets on
specific cable TV topics are available at [http://www.fcc.gov/mb/facts/#cable].
——. “FCC Role in Cable Rate Regulation Ends.” Consumer Alert. March 1999.
[ h ttp://www.fcc.gov/Bu reaus/Miscellaneous/Factsheets/cblrate.html] .
This two-page notice details the end of federal regulation of expanded basic
cable rates as of March 31, 1999, which was mandated by the
Telecommunications Act of 1996, P.L. 104-104.

¹⁰ National Cable & Telecommunications Association v. Brand X Internet Services, 125 S.
Ct. 2688 (U.S., 2005). The decision is available at [http://www.supremecourtus.gov/
opinions/04pdf/04-277.pdf].

Selected CRS Products
CRS Report RL33542. Broadband Internet Regulation and Access: Background and
Issues, by Angele A. Gilroy and Lennard G. Kruger.
CRS Report RL32398. Cable and Satellite Television Network Tiering and ‘a la
Carte’ Options for Consumers: Issues for Congress, by Charles B. Goldfarb.
CRS Report RL31260. Digital Television: An Overview, by Lennard G. Kruger.
CRS Report RS22217. The Digital TV Transition: A Brief Overview, by Lennard G.
Kruger and Linda K. Moore.
CRS Report RS21768. Satellite Television: Reauthorization of the Satellite Home
Viewer Improvement Act (SHVIA) — Background and Key Issues, by Marcia S.
Smith.
CRS Report RL33338. The FCC’s ‘a la Carte’ Reports, by Charles B. Goldfarb.
CRS Report RL32589. The Federal Communications Commission: Current
Structure and its Role in the Changing Telecommunications Landscape, by
Patricia Moloney Figliola.