be eliminated in markets where there is effective competition. By inserting inad-
equate guidelines for effective competition, H.R. 1555 prematurely deregulates mo-
nopoly cable systems at the expense of consumers nationwide, potentially leading
to dramatic rate increases for millions of consumers.
H.R. 1555 also provides that, upon enactment, small cable operators — defined as
those who serve less than 1 percent (i.e., approximately 600,000) of all cable sub-
scribers in the country and wnose gross revenues are less than $250 million annu-
ally — would have their cable programming service rates deregulated as well as their
basic service rates under certain circumstances. While appropriate relief should be
crafted for small cable operators, the provisions in H.R. 1555 do not provide ade-
quate protection for consumers.
The Administration agrees that the burdens faced by small cable operators should
be minimized. For example, the FCC has adopted provisions over the past year
granting rate relief to small cable systems, but based on a more narrow definition
than that contained in the bill. If additional legislative relief is necessary, it should
take into account the impact of small cable deregulation on consumers in rural and
Many small cable operators are the sole providers of multichannel video program-
ming in rural areas and are likely to be bought out or enter ioint ventures under
the rural exception to the anti-buyout provision in H.R. 1555 (discussed later in the
testimony). The combination of these two provisions, therefore, will leave consumers
in niral areas with no protection either fi-om rate regulation for cable programming
services or from competition. Such consumers may thus be subject to immediate
"rate shock" upon deregulation. Again, while we support appropriate relief for small
cable systems, such relief must be balanced against the obligation to continue to
protect consumers as well.
The deregulation of cable operators in the absence of a truly competitive market-
place is difScult to justify in view of the relevant facts. Cable rate regulation pursu-
ant to the Cable Act of 1992 was prompted by extraordinary cable rate increases
in the preceding years. According to surveys conducted by the General Accounting
OfBce in 1989, 1990, and 1991, cable price increases were on the average three
times the rate of inflation. In the three years after 1986, when widespread cable
deregulation went into effect, 80 percent of subscribers for both the basic tier and
the most popular tier of service saw their cable bills increase by more than 20 per-
In contrast, the FCC estimates that as a result of the 1992 Cable Act, consumers
have saved $2.8 billion through rate reductions as of December 1994. In addition,
the upward trend in cable rates, which had been about three times the rate of infla-
tion prior to the 1992 Cable Act, has now been limited to inflation plus a formula-
based percentage profit for the cable operators.
The years following passage of the 1984 Cable Act demonstrated the perils of de-
regulating on the promise of potential competition rather than the existence of ac-
tual competition. We should not repeat that experience.
Although the cable industry claims that it nas been severely hindered by exces-
sive rate regulation, the facts suggest otherwise. According to industry analyst Paul
Kagan Associates, Inc., multiple system operators' (MSO) stocks continue to out-
perform the Standard and Poor 5()0. Electronic Media, a major trade publication,
noted that cable systems' operating margins generally increased over the past five
years. In 1993, 14 new cable channels were launched. In 1994, 25 new channels
were launched. Launch plans for 1995 include 63 new channels.
In addition, subscribership numbers demonstrate that cable is still the dominant
provider of subscription-based video programming in the United States, and that
other providers are far behind. In 1994, the number of subscribers to the top 100
MSOs grew by about 5 percent — almost 3 million additional customers in one year —
adding to a base of approximately 60 million subscribers.
In contrast, direct broadcast satellite (DBS) has fewer than 1 million total cus-
tomers; wireless cable about 600,000 customers; and C band home satellite dishes
about 4 million customers. Telephone company provision of video dialtone (VDT) has
not even started on a commercial basis.
According to the FCC, even if all the telephone company applications to provide
VDT were approved, that would only cover about 10 percent of^ all households in the
United States. Yet it is highly unlikely that even that percentage of households will
have access to VDT within 15 months. According to FCC information, completion
schedules for VDT facilities range from two to twenty years. For example, the FCC
in February, 1995, granted Njniex's section 214 VDT application for Massachusetts,
which proposes to ultimately pass 334,000 homes. However, according to the appli-
cation's 15 year deployment schedule, only 106,500 homes, less than one third,
would be passed by the end of year two (1997).
A better way must be found to balance the cable industry's desire for more pricing
and service flexibility with the overriding need to protect consumers from excessive
rate increases. The Administration has indicated its willingness to work with Con-
gress and industry to minimize the burden of government regulation without sac-
rificing cable subscribers. We will not, however, support deregulation of monopolies
before the arrival of actual competition. As long as monopolies continue to exist,
consumers must be protected.
Broad Exceptions to the Anti-Buyout Restriction
The Administration commends the Subcommittee for recognizing that limits must
be imposed on the ability of a telephone company to buy out a cable company in
the telco's local service area. Allowing anti-competitive buyouts between telcos and
cable operators would undermine the universally accepted objective of increased
competition in both the video service and local telephone markets. Without an anti-
buyout rule, one monopoly would merely be substituted for another. The lack of
head-to-head competition would result in higher prices and less choice for consum-
One of the bill's exceptions to the anti-buyout rule, however, applies when, in the
aggregate, the area served by the purchased cable system does not exceed 10 per-
cent of the households served by the telco, and the purchased system does not serve
a franchise area with more than 35,000 inhabitants, or 50,000 if the system is unaf-
filiated with a contiguous system. This exception may be too broad.
Based on 1990 Census data, expanding the exception for rural and non- urban
areas of 10,000 inhabitants or below to areas (both rural and urban) of up to 25,000
inhabitants, for example, potentially raises the percentage of the population covered
by the exception from about 30 percent to approximately 54 percent, or about 140
million people. While the 10 percent limitation in the exception could bring this
number down, the exception still could potentially deprive a large segment of the
U.S. population of the benefits of competitive telecommunications and video service.
In addition, the anti- buyout rule is too narrow in that it focuses only on telco
buyouts of cable systems rather than on prohibiting buyouts between or among both
The Administration has consistently recommended that Congress adopt a strong
in-region anti-buyout restriction on acquisitions and joint ventures between tele-
phone companies and cable systems, with a limited exception for rural areas — for
example, communities with a population under 10,000, since such areas might not
be capable of supporting two wire-based competitors. The Administration supports
giving the FCC authority to review the need for an anti-buyout provision after five
years, taking into consideration the effect on competition, consumer welfare, and in-
Restricting anti-competitive buyouts at the outset will help promote the kind of
facilities-based competition between telephone companies and cable operators that
the American people deserve — competition that has the potential to deliver substan-
tial benefits to consumers and provide powerful incentives for private sector invest-
ment in advanced local infrastructure. Broad exceptions to the anti-buyout rule in-
vites consolidation of power by multimedia monopolies and discourages critical com-
petition in the video services and local telephone markets.
Video Programming Concerns
Concerns regarding concentration of ownership also are increasingly important
where control over programming is allowed. Economists have long recognized the
competitive problems that arise when a facUity owner is allowed to become a con-
tent "gatekeeper," creating the potential for increased rates to consumers and dis-
crimination in the choice of programming offered.
H.R. 1555 appears to recognize this problem by reqmring telephone companies in
most cases to offer video programming through a video platform that provioes access
to programmers on just, reasonable, and nondiscriminatory terms. The bill would
also authorize the FCC to applv the bill's video platform requirements to cable oper-
ators that have installed switched, broadband video programming delivery systems,
setting the stage for open cable systems as well.
The bill allows an exception to the video platform requirements, however, for
"overbuilt" cable systems owned by telephone companies that do not utilize the
telco's facilities or services in distributing video programming. Rather than allowing
this exception, we think the better approach is to encourage open systems in the
provision of video programming services by both telephone companies and cable op-
erators. This would ensure that unaffiliated programmers have ample opportunities
to market services directly to subscribers, with the related benefits of lower prices
for consumers, more programming choices, and improved customer service.
In addition, under the bill, the requirement that telephone companies establish
a separate affiliate to provide video programming sunsets in the year 2000. While
the coming of the second millennium is in some respects daunting, in fact it will
arrive in less than five years or approximately 235 weeks from now. Many telephone
companies may be getting their video programming affiliates up and running at a
time closer to the year 2000 than 1995.
We wholeheartedly agree with the Subcommittee that a separate affiliate require-
ment is needed for telephone companies providing video programming services. This
requirement would decrease the incentive for telco providers to cross-subsidize be-
tween the provision of video programming and regulated telecommunications serv-
ices. Rather than eliminating this important requirement in the year 2000, however,
we recommend that the FCC be given the authority to review the provision at that
time to determine whether it should be continued, discontinued, or modified. The
FCC's determination should be based on public interest considerations, such as
whether the requirement helps to ensure detection of cross-subsidies that could un-
fairly raise rates for consumers.
The concerns I raised above regarding the consolidation of power in the commu-
nications industry are compounded by other proposals that could significantly alter
the shape of the communications industry. Tremendous changes are already taking
place in the communications marketplace. Considering that the telecommunications
and information industries represent more than nine percent of this Nation's Gross
Domestic Product (GDP), the effect of the additional changes being proposed by
other bills pending before the Subcommittee could be dramatic.
Well-crafted legislation is needed to eliminate archaic rules and old structures
that hinder competition and innovation. The rush to radically alter the structure of
the industry in a flash cut, however, could undermine the equally important goals
of encouraging diversity of ownership, preserving localism in our Nation's media in-
dustries, and safeguarding against undue concentration of economic power.
Concentration of Ownership in the Mass Media Industry
In the broadcast area alone, for example, another bill — H.R. 1556 — would, all at
the same time: 1) eliminate the FCC's national ownership limitations on the number
of broadcast stations that can be owned by one company; 2) extend national audi-
ence reach limits for a commercial television broadcaster from 25 to 35 percent (for
FCC determinations made within one year after enactment) or 50 percent there-
after; 3) provide an exception, where the FCC deems it appropriate, for a commer-
cial television broadcaster to have a common ownership interest in VHF and UHF
television stations in the same market; and 4) eliminate current cross-ownership re-
strictions on cable system owners from holding ownership interests in national tele-
vision networks, a broadcasting station, and any other medium of mass communica-
tions, even in instances where these facilities also serve that cable owner's existing
These provisions are in addition to those in H.R. 1555 that would extend the term
of broadcast licenses while also limiting license review. Allowing all these ownership
changes at once could increase the potential for existing communications and media
owners to consolidate ownership control and discourage potential competitors from
entering the market.
Under H.R. 1556, for example, the FCC would no longer have authority to pro-
scribe the licensing of an unlimited number of radio stations to one broadcaster or
to review the ensuing effects on competition or programming diversity that such a
prohibition might produce. The bill would also allow a cable operator simultaneously
to control two commercial television station networks. In addition, the bill appears
to allow a cable operator simultaneously to control a commercial television station
within its franchise area or control one television station network and a host of
other forms of mass media communications facilities (e.g., direct broadcast service,
wireless cable, low power television, SMATV), which might also serve its area of
Such a high degree of common control over mass media facilities could have dev-
astating effects on competition and media diversity, especially now since the full
complement of mass media providers and services has not yet entered the market-
place. The FCC is already gathering extensive data to determine whether certain
broadcast and cable ownership provisions should be modified or eliminated. The un-
certain impact of the move to digital compression and other technological advances,
as well as the strong public policy in support of diversity in media programming,
argue for deferring to the FCC's determinations in these matters to ensure that
there is adequate opportunity to study the implications of these changes for the in-
dustry as a whole.
Changes in Foreign Ownership
Another bill — H.R. 514 — ^would repeal current restrictions on foreign ownership in
broadcast, common carrier, and certain aeronautical radio station licenses, without
requiring comparable treatment by other countries or review by any Federal agency.
While the Administration agrees with the Subcommittee's interest in reexamining
Section 310(b)'s foreign ownership restrictions to help foster open telecommuni-
cations markets worldwide, we feel strongly that these restrictions should only be
lifted for countries that have also opened their telecommunications markets to U.S.
In addition, a determination of whether this goal has been achieved for a particu-
lar country must be based on the advice of the appropriate Executive Branch agen-
cies who have broad statutory authority and expertise in matters relating to U.S.
national security, foreign relations, the interpretation of international agreements,
and trade (as well as direct investment as it relates to international trade policy).
The determination also should take into account the Executive Branch's views and
decisions with respect to antitrust and telecommunications and information policies.
Moreover, the Administration would not move to lift the restriction with respect to
broadcasting at this time. The Administration's position is based on the public inter-
est responsibilities conferred on broadcasters, the editorial control and discretion
they exercise over the content of broadcast transmissions, and the important role
broadcasters play as the backbone of our Nation's emergency alert system, which
is intended to alert the public to emergency information.
Holders of radio-based common carrier licenses, in contrast, typically control only
the underlying facilities rather than the content of messages transmitted over those
facilities. It is therefore not unreasonable to adopt different ownership rules for
those distinct categories of licenses. Also, given- the prevalence of government-owned
broadcast stations in most major markets around the world, the current foreign
ownership limitations for broadcast licenses under Section 310(b) are either more
liberal or mirror foreign ownership rules in those markets where private ownership
of broadcast stations is permitted.
In the FCC's recent Notice of Proposed Rulemaking on foreign entry into the U.S.
market, the Commission requested, among other things, comments on whether new
market entry rules should sJso apply to broadcast licenses. Although very few com-
menters addressed this issue, those who did noted that control of broadcast facilities
may present separate security and content concerns than those raised by common
Mr. Chairman, as you know, telecommunications reform legislation is a major un-
dertaking. It is extremely important that we take this opportunity to "get it right,"
not only for the benefit of our own country, but also for other countries that are
watching us as a possible model as they open their own telecommunications mar-
kets to greater competition.
While the Administration has serious concerns about H.R. 1555, I remain con-
vinced that if we work together, Congress, the Administration, and many other in-
terested parties can forge telecommunications reform legislation that promotes the
objectives to which we are all committed — competition, consumer welfare, invest-
ment, and reduced government regulation. Thank you again for the opportunity to
testify, and I will be happy to answer any questions.
Mr. Fields. Thank you, Mr. Irving. Not trusting myself or the
other members of our committee who would exercise the same re-
straint, time-wise, I'm going to put myself under the 5-minute rule;
as I will all the other members.
Ms. Bingaman, let me ask, does H.R. 1555 in any way restrict
your ability to pursue antitrust matters?
Ms. Bingaman. We are free to file a suit after the eggs are
scrambled. That's the problem. These eggs were scrambled once.
We unscrambled them in the modified final judgment; and the
problem with this bill is, it would leave us only attacking a plate
of scrambled eggs 10 years from now after great harm had been
done in these adjacent, competitive markets; and that's our prob-
These same companies, the same Bell Companies, were the local
arms of the old Bell System, which engaged in the anti-competitive
conduct that we put on for 11 months at trial. These people have
a history, these companies have a history; and we know a lot about
it. We've spent 20 years investigating this.
So, it doesn't prohibit it, but we think it is a major mistake not
to learn from that history and apply the VIII(c) test which these
companies agreed to, and which they have said on many occasions
is a proper antitrust standard. So, that's our problem.
Mr. Fields. What I really wanted to be clear of is that the legis-
lation does not restrict your ability to pursue an antitrust matter.
Ms. BiNGAMAN. No, but the problem is the Section 2 antitrust
standard — we discussed this in another committee a couple of days
ago — one of the major standards is, if there's been attempted mo-
nopolization, i.e., 50 percent market share in the second market.
The problem is, when the time comes that we can prove that
kind of a standard, the eggs will be scrambled and we'll be back
in another real problem for the country. So, that's our concern, Mr.
Mr. Fields. Well, your answer reflects what I said to you in my
office: If we knew you were going to be there forever, we might
have a different opinion of where this legislation should go, relative
to your office.
Let me move to another question. Do you support the language
in the Hyde legislation that says that you would have to find clear
and convincing evidence that there is a dangerous probably that
the Bell Company would monopolize the market it seeks to enter?
Ms. BiNGAMAN. No, I testified a couple of days ago before Chair-
man Hyde's committee that that language is a real problem. It is
not strong enough and it would be a rare case where we could meet
that standard, in fact, I believe. I don't think the Congress should
put in a DOJ role on the belief that simply the presence of the De-
partment of Justice, if the standard is not correct, would solve the
problem. You need both things. You need the Department of Jus-
tice and you need the appropriate legal standard. That's what we're
working with the Committee on the Judiciary on.
Mr. Fields. Let me just make one last comment and then I have
one question for Mr. Irving.
In your testimony you state that the resale language is vague.
As you can imagine, we're getting a lot of comments from a lot of
different people about that language. I would appreciate any com-
ments that you have to us. We're asking people to get their com-
ments to us as quickly as possible, preferably before the weekend,
so we'll have time to share and talk about the things we're receiv-
Mr. Irving, you testified before the Senate on telecommunications
reform legislation. You know, we've had the opportunity to meet
with you and different people in the administration.
Please take this in a constructive way. You're a very good friend
of this subcommittee, but it appears that all we've heard is criti-
cism of our efforts with respect to cable. We would be very desirous
to have a constructive proposal on cable from the administration.
Mr. Irving. We'll take that as a constructive suggestion. We
share the friendship. It's a mutual friendship. I'd certainly like to
be constructive in this process. We do have grave concerns, because
our concerns are about consumers. But we will try to work with
you and I will talk to my principals about the possibility of working
more closely and sharing proposals.
Mr. Fields. That really demonstrates our collegiality, doesn't it.
Mr. Irving. Yes, sir.
Mr. Fields. Thank you very much. The chairman's time has ex-
pired and I'll recognize the ranking minority member, Mr. Markey
Mr. Markey. Thank you, Mr. Chairman, very much. Welcome.
As you know, there is a companion piece of legislation, which is
also before the committee at this time, that has been introduced by
Mr. Oxley and by Mr. Steams. That deals with the foreign owner-
ship rules and also with broadcasting deregulation related issues.
Now, as you know, since 1934, the Communications Act has tried
to promote three, primary principles: universal service, diversity
and localism. Now in the context of this legislation, we've struggled
mightily, and I think we've come up with a very good solution on
the question of universal service. How to preserve it and enhance
On the questions of localism and diversity, however, I think that
the legislation which is pending before us raises very serious ques-
tions. Now, mindful of those original three principles in the 1980's
and 1990's, we're confronted with two new and additionally power-
ful forces; and that is, rapid technological change; and fierce global
competition. So, any new formula which we construct for the 1990's
and the 21st century has to factor in all of those into the equation.
Now, just to give you the perfect form of what is before us right
now, the proposal would allow for a newspaper in one community
to own two televisions stations, eight or ten radio stations, a cable
system, simultaneously. One company.