FOR YOUR INFORMATION.............................APRIL 24, 1991
FEDERAL TRADE COMMISSION STAFF SAYS
QUALITY OF BROADCAST RECEPTION
SHOULD BE FACTOR IN CABLE REGULATION
In revising the standard for when a cable television system
faces "effective competition" for basic service -- and thus is
exempt from local regulation of the prices it charges for that
service -- the Federal Communications Commission should consider
the over-the-air reception quality of local broadcast signals,
according to staff of the Federal Trade Commission in comments
made public today. A cable system's ability to provide improved
reception can be a critical factor in calculating the system's
market power, at least when the basic service package consists
mainly of local broadcast channels, FTC staff said.
The comments, written by the staff of the FTC's Bureau of
Economics and its San Francisco Regional Office, were submitted
in response to a Federal Communications Commission (FCC) proposal
to redefine what constitutes effective competition for basic
cable service. Under the existing FCC standard, basic service is
considered subject to effective competition if at least three
broadcast stations are available in the area.
(The Cable Act of 1984 exempts from local rate regulation
basic service offered by cable systems facing effective
competition. The Cable Act defines "basic service" as any
service tier containing retransmitted local broadcast signals.
Service tiers that do not include retransmitted local signals are
not subject to rate regulation under the Act.
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(CABLE)
Under a proposed revision of the standard, the FCC would
find that effective competition exists in an area if any one of
the following sets of conditions are met:
-- six broadcast stations are available in the community and
the number of homes purchasing cable service is below 50
percent; or
-- the cable system competes with an independently-owned,
multi-channel video delivery system which is available to
50 percent of the homes and purchased by at least 10
percent of these homes; or
-- the cable system offers a basic service package
comparable in quality and price to packages offered
in other communities where effective competition is found
to exist ("the competitive behavior standard").
According to staff comments, the only source of market power
in basic service that does not derive from the presence of
channels that are transferrable to non-regulated tiers is a
system's ability to provide improved reception of local broadcast
signals. If the threat of reregulation induces cable systems to
alter basic service so that it consists mainly of retransmitted
local signals, then the market constraint on the pricing of this
service is its closest substitute, which usually will be local
broadcast stations.
In some cable markets, physical obstructions, such as hills
and tall buildings, may prevent many residents from receiving
some or all of the local stations over-the-air, notwithstanding
their location within the stations' predicted reception area.
This suggests that an appropriate effective competition standard
might be based upon some index of local station reception
quality, rather than on the presence of some minimum number of
broadcast stations, cable penetration rates or some other
standard, staff said.
In fact, the FTC staff comments suggest that low cable
penetration rates may reflect the exercise of market power rather
than its absence, and that any "competitive behavior" standard
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(CABLE)
would fail to take into account interregional differences in
price and quality that could reflect differences in income,
individual preference, input prices, population density, local
regulations and other factors unrelated to the presence or
absence of market power.
# # #
MEDIA CONTACT: Don Elder, Office of Public Affairs
202-326-2181
STAFF CONTACT: Michael Vita, Bureau of Economics
202-326--3493
or
John Weigand, San Francisco Regional Office
415-744-7920
(CABLE)