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FCC Moves to Spur New Cable Channels : Television: The agency says operators can raise their subscriber rates if they expand their offerings.


WASHINGTON — Moving to encourage the cable television industry to offer more program choices, the Federal Communications Commission on Thursday adopted rules that let cable operators raise rates when they add channels.

Under the changes, to take effect Jan. 1, cable operators can boost monthly fees for basic cable service by as much as $1.50 a month in return for offering subscribers at least six new cable channels.

But despite Thursday's 3-2 vote to relax price regulation, experts say consumers should not expect to see a sudden explosion of new channels among the nation's 11,000 cable systems, because most are already using nearly all their channel capacity.

The new rules, adopted more than six months after the agency ordered a 7% rollback in cable rates nationwide, are aimed at addressing industry complaints that rate regulation had discouraged cable operators from modernizing their systems to increase channel capacity.

The changes "will produce more diversity in programming by giving cable operators reasonable incentives to add new channels," said Meredith Jones, chief of the FCC's cable services bureau.

Federal regulators have been under pressure to prod cable operators to add programming without upsetting the consumer price and service protection measures Congress approved two years ago in its re-regulation of the cable industry. Consumer groups have urged the FCC not to ease price restrictions so soon after it forced the industry to cut cable rates.

Cable operators, whose systems now sport an average of 38 to 40 channels each, have been slow to add channels in recent months despite new competition from phone companies and new satellite systems, which offer up to 150 video channels.

That's because many systems remain tapped out at full capacity and will require major overhauls to make room for new channels--a process that could take months if not years, experts say.

"The rule change by itself is not going to do the trick," said John Manssell, a senior analyst with Kagan Associates. "Most cable operators in major markets don't have more than a few channels that they aren't using."

Nevertheless, Thursday's action won plaudits from cable operators and from Wall Street, where Ray Katz, an industry analyst for Bear, Stearns & Co., called the FCC decision "a good thing for the industry. It will help increase cash flow. And anything that increases cash flows is a positive thing."

The old FCC cable rate rules "didn't make it worthwhile to offer new channels," said Joe Waz, a vice president at Comcast Corp., the nation's third-largest cable operator, with about 3.3 million subscribers. "But I think this action today frees up new opportunities for (cable) programmers."

Under Thursday's action, operators will also be allowed to offer an expanded tier of cable channels at unregulated rates.

Experts say small cable systems with just a few dozen channels will probably be among the first to take advantage of the rule changes.

"If I'm a cable operator with an 80-channel system, it doesn't make sense to add new cable networks no one has ever heard of," said Michael Wirth, director of the University of Denver's School of Communications.

"But if I'm only operating 35 channels and can add brand-name networks that people know, it might be worthwhile."

In a related action Thursday, the FCC authorized the auctioning of licenses for a "wireless" cable service that would compete with traditional hard-wired cable TV systems.

The decision to auction licenses for multi-channel, multi-point distribution service cable, or MMDS, caps recent agency efforts to maximize commercial use of the airwaves by selling communications licenses to the highest bidders.

MMDS technology, which has been around for nearly a generation, utilizes microwaves to transmit video signals. But because the home receiving antenna must be within the line of sight of the microwave broadcast tower, the technology is not suitable for mountainous and wooded areas.

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