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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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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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.
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MEDIA CONTACT: Don Elder, Office of Public Affairs 202-326-2181
STAFF CONTACT: Michael Vita, Bureau of Economics 202-326--3493
John Weigand, San Francisco Regional Office 415-744-7920