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Icon [Iowa City, Iowa] July 11, 1996 Page 3


What's up with local cable rates?

An interview with former FCC Commissioner Nicholas Johnson

If you've been keeping up with the JCNEWS listserv this month, you know that some Johnson County residents aren't too happy about the 17-percent increase they saw in their cable rates in June. One person asked whether anyone had some ideas about how to "protect ourselves from these ripoffs." Other people discussed the idea of a boycott and their dissatisfaction with our local cable operator's "monopoly" on the cable market.

One Iowa City resident has a unique perspective on the situation. Nicholas Johnson is a former FCC Commissioner, and here he discusses the local cable rate hikes and the rate increases nationwide (in some places up to 26 percent since January).

Icon: Wasn't the 1996 Telecommunications Act that Congress passed in February supposed to revolutionize the media in this country, bring competition to industries like cable television and ultimately lower prices?

Johnson: Well, yes. That was the argument. The American business community for perhaps the first time in history had decided that they really wanted competition -- competition that would drive rates down and provide better service to consumers. And that's why they were all giving these multi-$100,000 campaign contributions to politicians to make sure that they would pass this bill that would provide more competition and more rate reduction and consumer benefit. That was the argument. There were some who questioned that, of course, assuming that here, as in most instances, the real goal was to eliminate competition and permit the increase in prices. But that cynical assertion was denied by the bill's proponents. Now, of course, we are, in fact, seeing rate increases.

Icon: Did the government leave consumers totally unprotected?

Johnson: Consumers can get protection with regard to prices in two ways. One is to have a genuinely competitive marketplace, where you would have three, half a dozen or a dozen cable television suppliers in the community, as you have a half a dozen grocery stores available in the community. And then the marketplace at least has some capacity to hold prices down because if they get too high, we shift to another supplier.

The other way in which consumers can get protection involves monopolies like railroads or the old telephone company. In those instances, the way we provide consumer protection is by having an effective [p. 5] regulatory mechanism . . . that looks at costs, looks at return on investment and tries to create a pricing structure that the marketplace would have created had there been a marketplace. What we have in cable is the worst of all possible worlds from the standpoint of consumers and the best of all possible worlds from the standpoint of the cable television company -- an unregulated monopoly.

There is absolutely nothing holding down cable prices. There are some ineffective FCC standards, but they really provide very little restraint indeed. And even those are not enforced. So it's a little misleading to say the FCC is regulating. So what you have essentially is what the market will bear . . . That's [the situation] we have. And to no one's great surprise, I hope, what we are seeing is ever-increasing cable rates.

Icon: If the government hasn't looked out for consumers' interests, as you contend, is there anything that consumers themselves can do?

Johnson: Consumers have enormous potential power -- almost dictatorial potential power -- if only we would band together. Imagine what we could do to a local supermarket if 80 percent of the people shopping there would give $2 a year to an organization of consumers at that supermarket. I think we could put any product on the shelf. I think we could take any product off the shelf. I think we could probably fix the prices on a limited number of items in that store because there would always be the implied threat that if we didn't get what we wanted, we'd move our two or three thousand consumers down the road a couple of blocks to a competing grocery store.

Consumers could do . . . the same thing with regard to cable. The problem is people love their television too much. It is clearly the activity in which most people spend most of their time. There's work. There's sleep. And there's watching television . . .. But I would imagine that if, say, 5,000 cable subscribers would agree together that on a fixed date, we're all going to cancel our cable subscriptions unless the [local] cable company returns its rates to something approaching a reasonable return on their investment, I think they'd probably lower the rates. Except for the fact that our local cable company is not a local cable company -- it's part of the largest cable conglomerate in the United States -- [TCI] would probably be willing to lose Iowa City altogether rather than actually reduce the rates that they believe they have a constitutional right to dictatorially set. But a massive consumer boycott might have some effect.

There are [other] options. We don't have to have pay cable, which is where they make their greatest profit. We don't have to have "expanded basic." Having basic cable cuts your cable bill in half and gives you 19 channels. I think that ought to be enough to watch. If people are spending any time at all also listening to the radio, going to the theater and movies and renting video tapes and surfing the Internet and reading magazine and books and newspapers, I would think 19 channels of television would be enough. There is the opportunity, of course, to put up a rooftop antenna for local television. Or you can get one of those Direct-TV 18-inch, pizza-sized dishes for the side of the house and go that route. But that's not going to be any cheaper than cable, because prices there are dominated by the kind of folks setting the cable prices.

Icon: What can municipalities do to help consumers?

Johnson: There are a number of options. And, frankly, I'm quite disappointed with the local City Council and the Broadband Telecommunications Commission. They seem to be very disinclined to take on the local cable company. I think we could invite in other cable companies.

I think that US West, which just purchased Continental Cable, is clearly interested in the cable business. They might be interested in coming in and putting fiber to the home and providing Internet access and cable television services along with voice and fax and data and other services . . .. I think there are a number of options for bringing in competing services. There's a multi-point/multi-channel distribution service -- MMDS -- which creates the equivalent of a cable company without requiring wiring in the city. That would be another option.

And then there's municipal ownership . . . I think if we were to float a bond issue that we could pay back in a couple of years and put in that hub, and provide our own telephone service, and be in a position to provide our own cable service, I think TCI would know we're serious and we're not just blowing smoke. [They'd know that] if they didn't lower their prices, we would go into the cable business. But you have to have a lot of backbone. And until we can get the city to move on some of that, there's very little that individual consumers can do except to consider who they vote for the city council.

JIM JACOBSON

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