Selected Skirmishes: Let's Regulate Cable Now!

Oops. Didn't we already do that?

The outrage is palpable. Cable TV rates are increasing at four times the rate of inflation, and subscribers are mad as hell. Local monopolies are gouging consumers, who need protection from evil video conglomerates. Let's get Congress to regulate rates now!

That's what groups with consumer in their names are telling reporters and politicians, and the pleas of the Consumers Union and the Consumer Federation of America are not going unheeded. Articles have been written, hearings have been called, action will be taken. There's just one glitch: Cable rates are already regulated.

Six years ago, the Cable Television Consumer Protection and Competition Act of 1992 directed the Federal Communications Commission to clamp an extensive set of price controls onto some 11,000 U.S. cable systems. The FCC quickly created a new Cable Services Bureau, hired 240 additional staff members, and promulgated a series of rate rollbacks between April 1993 and July 1994. By the time the dust had settled, the FCC claimed that subscriber charges had been reduced by 17 percent--about $3 billion annually.

Nice going, Washington. That ought to prove that government really can work for the people. Indeed, the Clinton administration--which appointed a new, Gore-affiliated FCC chairman to spearhead the cable regulation effort--claimed the rate controls as a prime-time example of "reinvented government."

And then, reality. Who could have predicted it? When the feds clamped new limits on rates, cable system operators responded. They chopped back plans to expand capacities; they froze spending for new channels; they rejiggered tiers and squeezed additional revenue out of unregulated services. (Premium channels, such as HBO and Showtime, weren't subject to rate controls.) Most embarrassing to the FCC was the explosion in home shopping networks, which, unlike other channels, actually pay cable systems to be carried.

In the end, even with lower rates, customers found themselves getting a worse bargain--evidenced by the fact that basic cable subscriber and viewer growth rates plunged in the wake of FCC rate rollbacks. Subscribers were voting with their feet, rejecting the rate regulation scheme. By November 1994, under intense pressure from the owners of new cable networks (who had borne the brunt of the industry retrenchment under controls), the FCC relented. It allowed cable operators to raise rates at twice or three times the rate of inflation--just like before controls. Subscriber rates immediately began rising, as new services and higher quality programming were offered to customers.

There is little doubt that greater competition would redound to the advantage of consumers, although some of the remedies available to policy makers are curiously low priority. For instance, the "wireless cable" industry today languishes as a potential competitor, largely because the FCC refuses to move forward with rules which would allow such operators to deliver high-speed digital services (including Internet access) to local subscribers.

But one thing has been learned via bitter experience at the FCC: It is possible to do worse than unregulated monopoly. Price controls which inspire suppliers to screw around with services, marketing, and packaging to evade rate caps can result in falling subscribership--indicating that consumers consider themselves worse off when "protected."

These findings are not particularly controversial among those who have studied the matter. Even the Clinton FCC has given up the pretext; it has quite intentionally allowed rate ceilings to drift skyward. Despite its good-faith effort to quash the evil cable cabal, the wreckage of new programming--and the destruction of industry growth rates--proved too high a cost.

No matter underlying realities, pols must pose. Congressional Republicans understand the futility of re-regulating cable TV, but that doesn't mean that Trent Lott can't make the evening news by issuing a "stern warning" to the cable moguls that "people are not going to stand for [double-digit price increases in their cable bills] and neither are we."

Never one to miss its turn, the administration has ordered a study of the cable rate problem by the Department of Commerce. This bold move puts one agency of Clinton appointees to examining the fruits of another agency of Clinton appointees; what you get here is great fanfare on announcement of the "investigation," and then…years of diligent study. For good reason. Even former FCC staffers who were in charge of cable policy in the glory regulation days of the "17 percent rollback" now openly concede that the industry--and its complicated video programming product--was much too elusive a target for effective rate controls.

Cable regulation was a very useful social experiment--and continues to be. For now we may view the spectacle of "public interest" groups championing rate controls to be imposed by regulators who have given up on them.

As reported by the A.P., the Consumers Union now urges Congress "to take whatever steps are necessary to make the FCC do its job to protect cable consumers." In short, C.U. feels regulation is too important to be left to the regulators. Which, in turn, suggests that consumer protection is far too important to be left to the consumer advocates.

Contributing Editor Thomas W. Hazlett ([e-mail]) teaches economics and public policy at the University of California, Davis, and is the author, with Matthew L. Spitzer, of Public Policy Toward Cable Television: The Economics of Rate Controls (MIT Press).