A Ceiling for Cable Rates?

Congress and the FCC are considering new controls for a maturing industry. TELEVISION: REGULATION

IN rural Henderson, Tenn., where citizens can tune in only fuzzy far-away television signals off the airwaves, cable television is a life-line to the world of news and Hollywood entertainment. It wasn't until local cable rates jumped 40 percent overnight - launching a battle worthy of a prime-time soap opera - that Mayor Charles ``Eddy'' Patterson realized just how much of a necessity cable had become. ``It's kinda like running water in the house. Once you become accustomed to it, you don't want to do without it.''

It is this view - shared by many others - of cable television as less a luxury than a basic American necessity that is behind a growing movement to rein in an industry that exists in most communities as a monopoly.

Congress and the Federal Communications Commission (FCC) are both looking to re-regulate the cable business. Under Reagan-era de-regulation, cable fluorished: A booming $15 billion-a-year business, it's high-tech tendrils reach 50 million homes or about 60 percent of households with televisions. But there are few controls on its rates, programming, or quality of service.

Henderson's experience is symbolic of the cable boom which has steamrolled through America, says Mayor Patterson. ``We're a prime example of what can happen. ... [We have licensed] a monopoly.''

Last June, the town's cable franchise, MultiVision Cable TV, hiked the basic monthly rate for 17 channels 40 percent to $19.95. Local outrage led to an unusual gambit: Henderson offered a second franchise license to CableAmerica Corp. to build a competing cable system.

By November the town of 5,000 was wired with two working cable systems. Locked in competition, both offered three months of free cable service to new subscribers and basic monthly rates of under $12 for an expanded offering of 40-plus channels.

Henderson residents thought they had found a way to make their economic clout felt, says Mr. Patterson, who was even called to testify before the US Senate on the effects of competition in Henderson.

But the community was stunned last month to learn that CableAmerica was selling out to MultiVision and basic cable rates would rise to about $15 a month.

It is controversies like Henderson's as well, as a long-term concern about the control of video technology, that give momentum to the new regulatory effort.

The industry is already feeling the effects of the uncertainty over the possibility both of re-regulation and of competition from telephone companies and direct satellite video systems, says John Mansell, a Washington analyst with the consulting firm Paul Kagan Associates.

``Cable stocks have been hit very hard; some are down, in many instances 30 to 40 percent,'' he says. Looking for market stability, industry operators themselves have even gone on record supporting some regulation.

``We're now at a point where there is a refocus on what cable television should be. ... It's clearly a business, but [because of the] larger community policy questions we are not going to ignore it as if they were selling widgets,'' says Donna Lampert, a fellow in the Washington program of the Annenburg School of Communications.

Indeed, the growth of cable and its technological importance as the conduit for video communications of all sorts has become more than a question of how much it will cost the consumer to flip from NBC to HBO.

``There's a very strong argument that any individual television program is not a necessity. But television has become so important in the fabric of society - to our national identity and at times of crisis - [that it plays] a unique role in post-industrial democracy,'' says an FCC cable official who asked not to be identified.

``Precisely because it is so important,'' the official says, the power to control cable - both the conduit and the content - needs to be kept diverse. It is in the public interest to keep information distribution competitive so it can be inexpensive enough for access by all economic levels.

The first regulatory move is expected in July, when the FCC adjusts its definition of ``effective competition'' to give some rate control back to local authorities. Now, cable systems are free to set their own rates if ``effective competition'' - that is, at least three local over-the-air signals - exists in a market.

So in most areas, municipalities can grant cable franchises, but they have no regulatory leverage with the cable companies once they begin service, explains Randy Arndt, a spokesman for the National League of Cities.

While cable operators have hiked fees an average of 14 percent a year, many cities have had problems getting their franchises to make good on contract promises to finish the build-out of the systems, to maintain signal quality and technical standards, and to offer new technologies.

The rate increases are reasonable when considering the proliferation of new channels and programs in the late 1980s, says John Wolfe, a spokesman for the National Cable Television Association.

Further, he says, those higher fees financed the building from scratch of the cable infrastructure, which is now available to 90 percent of all television households.

``We don't think there's a record to justify re-regulation,'' says Mr. Wolfe.

But the NCTA does support changes in the FCC's definition of effective competition that would allow more local rate regulation. ``We recognize there is a consensus for change, and if they are going to re-regulate, we want it to be narrow,'' he says.

None of the various pieces of cable legislation before Congress is expected to be enacted this year, but observers believe they will set the agenda for cable regulation in the future.

The long-accepted communications policy of maintaining separation of ownership of conduit and content is sure to be tested with cable. Most of the largest cable operators are investors in cable programming companies too. Critics suggest this gives operators the power to keep competing operators from buying certain programming.

The Senate's proposed Cable Television Consumer Protection Act would require the FCC to set limits on the number of channels that can be occupied on a cable system by programmers affiliated with the cable operator, and it would limit the number of subscribers a single cable operator can reach nationwide.

Under the proposed Senate legislation the regional telephone companies would be allowed to enter the cable market to set up the co-axial cable used for video signals, without having to get franchise authority.

The cable industry, as well as telecommunications analysts, criticize this notion of trying to use the telephone system as an added competition prod within the industry, because of the history of monopolistic abuses by the phone companies. Further, they say the phone companies' objective is not only to operate the cable-system infrastructure but to get involved in programming.

Broadcasters are asking that cable operators begin to pay for the use of the broadcast signals. However, cable operators argue that they should not have to pay for these signals as long as federal law requires them to carry all local television signals.

A proposed House bill by Rep. John D. Dingell, a Michigan Democrat, would require cable to carry non-commercial educational channels - the number depending on the size of the system.