104th
Congress: Democratic Perspectives 103rd-107th
Congress Committee Activity H.R. 1555 is a big bill. It contains many provisions that are similar to those contained in H.R. 3626 and H.R. 3636, each of which passed the House in June 1994 by overwhelming majorities. The bill seeks to breakdown statutory and regulatory barriers that have impeded the development of competition--competition for incumbent cable operators, competition to local telephone companies, competition in the long distance, and competition in the manufacturing of telecommunications equipment.
Most of us supported the motion to report the bill to the full House. It contains much with which we agree. It also contains provisions with which we disagree--in some cases strongly--and which we will continue to work to improve as the bill is considered by the full House and in conference.
We would like to note that the bill's consideration in both the Subcommittee and the full Committee has been, for the most part, bipartisan. We would like to express our gratitude to the Majority for the manner in which they have worked with us, and to express our hope that this is the beginning of a pattern for all legislation moving through the Committee.
Title I of H.R. 1555 creates a new Part II of Title II of the Communications Act of 1934. This new Part seeks to create a regulatory environment that will foster the development of competitive markets in the local and long distance telecommunications industries. It contains provisions that are similar to the provisions of H.R. 3636, which passed the House by a vote of 423-4 in June 1994.
Title I also contains the so-called `checklist' of market-opening measures that must be implemented by the seven Regional Bell Operating Companies (`RBOCs') before they are freed from the constraints of the Consent Decree. This Consent Decree keeps the RBOCs out of the long distance business and precludes them from engaging in manufacturing activities. Many of us disagree with the balance that the majority has struck with respect to RBOC entry into the long distance business, and intend to file Additional Views to outline the nature of our disagreement.
The adoption of Title I of H.R. 1555 will have a profound effect on the architecture of Title II of the Communications Act. Title II has its roots in the Interstate Commerce Act of 1988. Ironically, the railroad industry whose activities were governed by that century-old law was largely deregulated in 1980 by the Staggers Rail Act. The Communications Act of 1934, viewed as a railroad statute, has little relevance to a competitive telecommunications marketplace.
Title I of H.R. 1555 preserves existing Title II of the Act as Part I. However, and significantly in our view, it also includes permissive authority for the Federal Communications Commission (FCC) to forebear from regulating when market forces are sufficient to protect consumers. A new Part II will create the transition to a more competitive marketplace, and, to a certain extent, will govern the activities of carriers in a competitive marketplace. Finally, Title I of H.R. 1555 creates a new Part III of Title II of the Communications Act containing Special and Temporary Provisions. These provisions govern, for a limited period of time, the manner in which the RBOCs can engage in manufacturing activities.
This architecture preserves existing `rules of the road' while market forces are permitted to develop, but which cease to have effect when those forces have developed to the point that they are sufficient to protect consumers.
Title II of H.R. 1555 repeals the provision of the Communications Act that prohibited telephone companies from providing cable television service in their telephone operating territory. It is very much similar to comparable provisions in H.R. 3636 in the 103rd Congress. Title II contains differing requirements for telephone companies that provide cable service in their own operating territory, depending on whether they utilize their local exchange facilities to provide cable television service.
If they construct and operate stand-alone cable systems (in essence, duplicating the networks that cable companies operate) they are subjected to the same franchising requirements and `must carry' requirements as are cable operators. To the extent that the telephone company utilizes its own local exchange facilities, however, it will then be required to build and operate a video platform.
The video platform is designed to look much like a common carrier. The telephone company will be precluded from discriminating among video programming providers and will have to make services available upon request, on nondiscriminatory terms, at just and reasonable prices.
In the last several years, the FCC has attempted to circumvent the statutory prohibition on telephone company provision of cable services by encouraging the construction and operation of `video dialtone' systems. In order to permit entry, however, the Commission was forced to define what are essentially facilities used for local delivery services as `interstate access' services in order to bring them under federal jurisdiction. The result has been to require the telephone companies to comply with complex and cumbersome regulations that were designed for telephone services.
These regulations have no relevance to the design, construction, and operation of video networks, and have only served to complicate and delay the competitive offerings of telephone companies. Section 653(c), as added by Title II of H.R. 1555, clarifies that telephone company provision of cable television services will be regulated according to the provisions of Title VI of the Communications Act, freeing the companies from the unnecessary common carrier regulation to which the Commission has subjected them.
Section 202 of Title II contains provisions that deregulate the cable television business. The FCC has been criticized by the cable industry and others for what they believe to be overzealous implementation of the 1992 Cable Act, and the `effective competition' test contained in that Act has been attacked as regulating the cable industry well past the time when consumers would be protected by having access to competitive alternatives. However, in our view, the cable provisions of H.R. 1555 go too far.
For example, the bill deregulates rates for all services offered by `small' cable companies on the date of enactment. Yet it defines as `small' any unaffiliated cable system with fewer than 600,000 subscribers! (This is roughly the size of the cable system serving Las Vegas.) According to the FCC, this would deregulate, on the date of enactment, rates of all of the cable subscribers in Alaska, and the rates for more than half of the subscribes in Arkansas (58.3%), Georgia (61.1%), Maine (53%), Minnesota (63%), Nevada (69.2%), New Hampshire (50.7%), North Dakota (60.6%), and South Dakota (82.9%). As a result of this provision, rates would be deregulated immediately for more than 16 million households--28.8% of the cable subscribers in the United States.
In addition to the immediate deregulation of these so-called `small' systems, H.R. 1555 deregulates the `enhanced basic' tier for all cable systems a mere 15 months after the date of enactment. This is the date on which the FCC publishes its rules for the establishment of the video platform that will enable telephone companies to compete for subscribers. As a result, cable operators will be able to raise rates at will, without facing either competitors in the marketplace or government regulation.
The Administration has targeted these provisions as among those which must be changed if the President is going to sign this bill into law. Either the date for deregulation must be changed so that actual competition will govern the rates that cable operators can charge, or some residual authority for the FCC must be retained for egregious rate hikes. We intend to continue to work to improve these provisions, either on the floor or in conference with the Senate.
Title III of H.R. 1555 contains provisions that will affect the future of the broadcast industry. Here again, there are provisions we support, and others we believe go too far.
For example, section 301 contains the so-called `spectrum flexibility' provisions that will allow broadcasters to utilize their advanced television channels to broadcast more than just television programming. Given the characteristics of digital technology, coupled with the bandwidth that television signals require, in the near term there will be many exciting new applications for data transmission services that broadcasters can offer. Section 301 will make these possible.
However, section 302 contains the Stearns Amendment that was offered, debated and ultimately approved by the Committee. It is sweeping in its scope. Section 302 repeals all of the Communications Act's, and the FCC's limitations on the ownership of mass media properties. The limits on the ownership of radio stations are repealed. The newspaper/broadcast cross ownership prohibition is repealed. The network/cable cross ownership prohibition is repealed. The broadcast/cable cross ownership prohibition is repealed. The dual network rule is repealed. The rules prohibiting duopolies in local markets are repealed and replaced with rules that will permit the establishment of many duopolies. The Commission's current limitations on the number of local stations that networks can own are repealed and replaced with other limits that are extremely generous.
We recognize that the Stearns Amendment was modified to include statutory authority for the Commission to disallow transactions that would lead to local concentration. This was a significant improvement. And this authority extends to license renewals, so that the acquisition of unlicensed mass media outlets by a licensee can be examined after the fact to ensure that undue local concentration has not resulted from such an acquisition.
But the fact remains that the Stearns Amendment goes further than it should. Many local broadcasters feel that the sweeping scope of the changes embodied in the amendment will alter the mass media landscape fundamentally, and leave a relatively few network executives in a position to dictate programming for all Americans. This is another instance in which the Administration has indicated that changes are going to have to be made if the President is going to sign this bill. We look forward to working with our colleagues to achieve those changes.
The Committee made some significant improvement in the text of the Oxley amendment adopted in the Subcommittee. The text of that Subcommittee amendment repealed--in their entirety--the alien ownership provisions of the Communications Act. The result of this repeal would have been to allow foreign telephone companies that operate in closed markets to have access to the open American market, without any comparable or reciprocal opportunities for American firms abroad. It would have permitted foreign nationals to buy American television networks and program them in any way they wanted. It would have allowed drug dealers from the Cali Cartel to acquire and operate U.S. common carrier networks, potentially impeding the legitimate law enforcement activities of the U.S. Government.
Fortunately, during the course of the Committee's consideration of H.R. 1555, Mr. Oxley, Mr. Brown of Ohio and Mr. Klink jointly offered an amendment that scaled back significantly the repeal of the alien ownership provisions that resulted from the earlier adoption of the Oxley amendment. The Oxley-Brown-Klink amendment limited the repeal to the acquisition of common carrier licenses by foreign nationals. It also included a mechanism that permits the President to determine whether reciprocal opportunities exist for American firms and requires the FCC to exercise `great deference' to the President when considering whether to grant a request for issuing or transferring a license.
Although the `great deference' language appears sufficient to meet the primary concerns about the original Oxley language, the brief interlude between the Subcommittee and full Committee markups did not allow adequate time to ensure that the Commission will not be able to substitute its own judgment for that of the President on matters of national security, foreign and trade policy, and law enforcement. We intend to continue to explore this issue with the Administration, to ensure that the President's authority to carry out his responsibilities under the Constitution are not impeded as a result of the enactment of this provision.
As we have noted, H.R. 1555 contains many provisions that we support wholeheartedly. It also contains many provisions with which we disagree. In this respect, it is something of a `work in progress' that needs fine tuning in some places and more work in others.
The legislative process is a lengthy one. There will be additional opportunities--on the floor and in conference with the Senate--to continue our efforts to improve a bill that already accomplishes many good things. But ultimately, of course, unless this bill becomes law, our efforts will have been for naught.
We hope that the Majority will continue to work with us to achieve the goal of enacting a good telecommunications statute. We again express our willingness to work productively and cooperatively to accomplish that goal. Congress has been struggling to update the 1934 Act since the late 1970s. We hope that, at long last, we will have succeeded in crafting a new law that allows competition to determine the type, scope, and breadth of services available to the American public.
John D. Dingell.
Edward J. Markey.
W.J. `Billy' Tauzin.
Gerry E. Studds.
Frank Pallone, Jr.
Bart Gordon.
Elizabeth Furse.
Bobby L. Rush.
Bart Stupak.
In 1783, Lord North was ousted as Prime Minister of England under George III. The no-confidence vote that forced him to step down occurred on a resolution offered by one Charles James Fox. That resolution, known as Fox's `India Resolution,' reads `Resolved, that we have seen your work, and it will not do.'
Although we voted to report H.R. 1555 favorably to the House because, on balance, the bill improves upon current law in some respects, the `India Resolution' sums up our feelings about the manner in which the Committee has fashioned H.R. 1555 so as to protect the long distance industry (and telecommunications equipment manufacturers) from competition by the Bell Companies.
Many have labeled H.R. 1555 a `deregulatory' bill. And it indeed deregulates entry into several communications markets where competition does not now exist. But insofar as it protects the long distance carriers against Bell Company entry, the legislation is anything but deregulatory. It imposes onerous new regulations that will delay and make extremely difficult Bell Company entry into new lines of business, thereby protecting incumbents and unreasonably postponing the availability of new technologies, new services, and lower prices to consumers. In our view, this raising of the bar for a select group of companies constitutes an egregious breach of faith by the Government.
The Bell Companies are currently kept out of the long distance business as a result of restrictions that were imposed as part of the 1982 settlement between the Government of the United States and the then-integrated American Telephone and Telegraph Company (AT&T) that resulted in the break-up of AT&T in January, 1984. The restrictions on the Bell Companies are embodied in the 1982 Consent Decree. The Decree modifies an earlier Consent Decree, or Final Judgment, agreed to in 1956 to settle an antitrust lawsuit brought against AT&T by the Government in 1949. It is thus unknown as the Modification of Final Judgment, or the MFJ. In the eleven years since divestiture, the Decree has been administered by a U.S. District Court judge and enforced by the Department of Justice.
The standard for determining whether the Bell Companies should be permitted either to enter the long distance business or to engage in manufacturing activities is known as the `VIII(C)' standard, from section VIII(C) of the MFJ. This standard is a modified Clayton Act standard, and requires a Bell Company to demonstrate that `there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter.'
As it has been administered by the Judgment Court and the Department of Justice, the VIII(C) standard has proven extremely difficult for the Bell Companies to meet. This is due to a variety of factors, among them an ossified perspective of an industry structure, a perspective that may have been valid in the late 70s but which has been dramatically overtaken by change since then; a lack of expertise and understanding of the way telecommunications markets operate; and the lack of an orderly procedure to ensure that wavier requests are timely processed. 1
[Footnote]
[Footnote 1: With respect to the lack of an orderly procedure, we note with approval that the current Assistance Attorney General for Antitrust, Anne Bingaman, has improved substantially the processing of waiver requests. Nevertheless, there remains a need for procedures that guarantee the timely processing of waiver requests, and orderly appeals.]
The bill passed by the House in June 1994, H.R. 3226, did not impose new and onerous regulation on the Bell Companies in order for them to enter restricted lines of business. Rather, with respect to Bell Company entry into long distance, for example, that legislation did three things:
It codified both the restrictions on providing long distance and the VIII(C) standard for determining whether entry should be permitted, notwithstanding these restrictions;
It exempted from the prohibition those services which had a long distance component, but in which that component was incidental to the delivery of another service, such as cable television; and
It created a process for the orderly review and consideration of waiver requests, and for the timely appeal of Justice Department decisions regarding entry.
Both the 1982 Consent Decree and the 1994 legislation used a standard that is forward looking: it required an analysis of the market that a Bell Company has applied to enter. In stark contrast, H.R. 1555 requires that before a Bell Company can even apply for entry, it must have implemented a series of measures to open up its existing market to competition. This is tantamount to requiring that each of the Bell Companies must first lose market share as a condition precedent before applying to enter new markets.
Based on the MFJ, current law has flexibility so that if a Bell Company decides, on its own, to open up its local exchange facilities to competitors, it can use the opening to buttress its arguments that it cannot impede competition in the market it is seeking to enter. In the alternative, a Bell Company may have a greater interest in maintaining its status as a monopoly and rely instead on safeguards (such as equal access) to protect against impeding competition in the market it is seeking to enter. In either case, the Bell Company controls its own destiny.
H.R. 1555, however, strips the Bell Companies of their ability, using their own business judgment, to determine how best to enter new markets. Instead, H.R. 1555 imposes new and burdensome regulatory requirements that must be met before an application to remove the restrictions can even be filed. Hence the breach of faith.
The regulatory restrictions imposed by the bill are, indeed, onerous. Perhaps most pernicious is the bill's requirement that local telephone companies must `resell' their local services at rates that are `economically feasible to the reseller.' This requirement is based on the erroneous presumption that the provision of local telephone service is profitable. In fact, it is sold at prices that are substantially below cost. It has long been a matter of federal and state policy, and of industry practice, to maintain low, affordable local telephone rates. In return, rates for other (frequently discretionary) services are often priced above-cost, creating a pool to help underwrite the cost of providing local service.
Thus, intraLATA toll charges are priced at levels that substantially exceed, on a per-mile basis, the charges for interLATA toll calls. Business rates are higher than residential. Rural service is priced at levels comparable to suburban service, despite the disparity in the cost of providing the service. Many states permit telephone companies to charge for unpublished numbers, even though there is only a negligible cost incurred by not listing numbers. So-called `vertical services' such as call waiting, call forwarding and caller ID often are priced above cost, and thus they too contribute to the pool.
In short, local telephone service is heavily subsidized. Yet as drafted, H.R. 1555 requires that such service be further discounted for resale carriers so as to be `economically feasible' to the reseller. The most likely beneficiaries of this provision are the long distance companies, which are interested in `bundling' local and long distance service. They will be allowed to utilize the networks of the local telephone companies, without investing a dime in plant and equipment of their own. In our view, it is outrageous that federal law would give AT&T, the largest telephone company in the world, with gross revenues that dwarf those of any of the Bell Companies, and the other long distance carriers a guaranteed statutory discount--a subsidy--for an already subsidized service.
Ultimately, local telephone subscribers will pay the price. The provision would decrease the revenues of the telephone companies. But since the basis for the discount is `economic feasibility for the reseller,' as opposed to a discount that is cost-based, there is no commensurate decrease in the telephone companies' costs. The result will be to increase the amount of subsidy to make up the shortfall--a subsidy that is paid for by consumers. To the extent that Members have expressed concern about the potential for growth in the subsidy pool, termed the `Universal Service Fund' in the bill, the resale provision should cause a severe case of heartburn. And that is the `best case' scenario. The alternative is simply to increase local rates by an amount necessary to make up the difference. In either event, universal service is threatened.
It is fair to ensure that those seeking to resell local telephone service do not bear the costs of the underlying carrier's marketing efforts, nor those costs associated with billing and collection. But any discount that exceeds the cost of marketing, and of billing and collection, constitutes a subsidy.
We find it particularly ironic that despite the rhetoric about `deregulation', the resale provision of H.R. 1555 perverts the Commission's resale policies from their origins as deregulatory initiatives, and transforms them into intrusively regulatory measures. The FCC adopted its resale policy in the early 1970s in order to lessen the Commission's regulatory burdens. The Commission determined that if an underlying carrier priced or discriminated in favor of a particular customer, then others can request the same deal from the underlying carrier. The adoption of this policy lessened substantially the FCC's oversight of carrier tariff offerings under sections 201 and 202 of the Communications Act. Over AT&T's objections at the time, the courts strongly affirmed the FCC's resale policy and attached great weight to the Commission's interpretation that the policy was deregulatory.
However, the Commission's policy has never required that an underlying carrier create a resalable product. Instead, the Commission has only required that carriers cannot limit the resale of the products they create. This is an extremely important distinction in light of H.R. 1555's intent to impose, for the first time, an affirmative obligation on the local carrier to create a product that is `economically feasible'--a resalable product. It is particularly ironic that, for almost two decades, long distance carriers have relied upon repeated FCC statements and decisions that affirm that carriers have no obligation to create a resalable product when they are defending themselves against charges that particular tariffs make the resale of a particular service `unresalable'.
We have characterized this provision as `pernicious.' For the local telephone industry in general, and the Bell Companies in particular, that is an accurate description. It requires that the local telephone industry subsidize its competitors; the very companies with which the local telephone industry wishes to compete for long distance business. And in the case of the Bell Companies, it forces them to subsidize competitors for a substantial period of time when the Bell Companies cannot even apply for long distance relief, much less offer long distance services.
The branch of faith to which we referred also extends well beyond requiring the Bell Companies to subsidize their competitors. As we noted above, before the Bell Companies are permitted to ask state and federal regulators to allow them to enter the long distance market, they must implement a series of market opening measures to permit competition in their home market. In order to prove that their local networks have been adequately opened to competitors, and in order to obtain authority to enter the long distance business, each company must demonstrate that it is providing access to and interconnection with its network facilities to the facilities of a competing carrier. This competing carrier must offer, over its own facilities, competitive service that is comparable in price, features, and scope to both residential and business subscribers.
It is possible that this requirement can never be met. It appears that each of the Bell Companies may have to wait to apply for long distance relief until some competitor has duplicated the Bell Company's network and offers service of comparable `scope' throughout the service territory of the Bell Company.
Curiously, H.R. 1555 fails to provide a means by which the Bell Companies ever could obtain permission to offer long distance services that originate in states (or nations) in which they do not provide local telephone service. During the course of the Committee's consideration of the bill, a colloquy on this point did little to clarify how a Bell Company can obtain out-of-region and international relief. In fact, the bill's treatment of this issue goes beyond breach of faith to pure Catch-22.
The facts are these. H.R. 1555 adds a new section 245(f)(1) to the Communications Act. This section prohibits a Bell Company from offering interLATA services with two exceptions, neither of which is relevant here. Section 245(f)(2) provides that a Bell Company, in any State to which its verification under section 245(a) applies, may offer interLATA services after the effective date of the Commission's approval of such verification. In other words, a Bell Company cannot originate interLATA traffic in any state unless the FCC has approved a state verification that the company has complied with the provisions of section 245(a).
Section 245(a) requires a Bell Company to provide the FCC with a certification from a state public utility commission that its local network has been opened and complies with the provisions of the section. Certifications are based on facts. If a Bell Company does not operate a network in any given state, that state's public utility commission cannot in good faith certify in fact to the Commission that the company's network has been fully opened if the company has no such network in that state. And unless the FCC has approved a state's certification, the prohibition on Bell Company provision of interLATA services remains in force.
Thus, while there is a mechanism in place that ultimately will permit a Bell Company to offer interLATA services for traffic that originates within states in which it offers local telephone service, there is no way that the Bell Companies can obtain relief for interLATA traffic that originates outside of their service territories.
We look forward to the debate in the House on this issue. We anticipate with particular interest the discussion of how the Bell Companies can obtain relief to carry U.S.-bound traffic that originates overseas, where not only are there no state public utility commissions, but there are no states at all.
Finally, the Committee adopted an amendment that requires the Bell Companies, for three years after enactment, to provide interLATA services only through a separate subsidiary. This is a burden uniquely imposed on the Bell Companies. Sprint, which offers both local and long distance service, is not so constrained, nor is AT&T, nor is any other company, even after they enter the local exchange business in direct competition with the Bell Companies.
The lack of parity between the bill's treatment of the Bell Companies and all others is striking. It will also lead to some rather ludicrous results, particularly since the separate subsidiary requirement extends to all long distance services, including those previously authorized by the Judgment Court and those authorized by section new 245(h) as added by this bill. New section 245(h) exempts from the prohibition on Bell Company provision of interLATA services a series of services that contain a long distance component, which component is incidental to the provision of an unrelated service. Among these services containing an incidental long distance component are cellular and other commercial mobile services, cable services, and signalling services.
The Committee's decision to adopt a separate subsidiary requirement will require that when a Bell Company provides cable service that includes a long distance component, that long distance transmission will have to utilize facilities owned by another company.
It will be interesting to see how this requirement will affect, for example, the operation of SWB's (formerly Southwestern Bell Telephone Company) cable system in Montgomery County, Maryland. Montgomery County is divided into two LATAs; SWB serves cable customers in each. Perhaps the company could divest itself of inch-long sections of its system each place it crosses the LATA line, and then lease the sections back from the new owner.
H.R. 1555 compels the same silly result with respect to the Bell Companies' provision of commercial mobile services, including cellular telephone and paging services. Presumably, the Bell Companies will have to divest themselves of little pieces of their existing networks wherever they cross a LATA boundary, and then lease the pieces back from the new owners. The public interest rationale for this nonsensical requirement is difficult to discern.
In sum, H.R. 1555 is a deregulatory bill except when it comes to shielding the long distance industry from competition from the Bell Companies. It caters to the long distance industry by unilaterally and one-sidedly abrogating the agreement into which the U.S. Government entered in 1982. In our view, this breach of faith makes it considerably more difficult--and in some cases impossible--for the Bell Companies to obtain long distance relief. It imposes obligations that will mandate that the local telephone industry subsidize its local competition, even when the competitors are among the largest companies in the world.
While we support many of the market-opening initiatives embodied in this bill, we will continue our efforts to ensure that the long distance industry does not succeed in preventing competition from its most likely competitors: The Bell Companies. The provisions we have discussed here must be improved substantially in order to achieve the fairness that is essential in a rewrite of the Communications Act and the free market principles on which this legislative exercise, we had thought, was originally premised.
John D. Dingell.
W.J. `Billy' Tauzin.
Rick Boucher.
Bart Stupak.
I am happy that the House Commerce Subcommittee on Telecommunications and Finance unanimously accepted my bill, H.R. 1559, the Freedom From Toll Fraud Act, which seeks to crack down on abuses in the 1-800 industry, as an amendment to H.R. 1555, the Communications Act of 1995.
Three years ago, Congress passed a piece of legislation that I was integrally involved with, the Telephone Disclosure and Dispute Resolution Act (TDDRA), which put the brakes in abuses in the 1-900 pay-per-call industry by requiring price-per-minute disclosure and making 1-900 call blocking available to parents. Regulations by both the FCC and FTC have since put the law into effect.
Rather than comply with the law, many of the 1-900 abusers have simply moved their sex and psychic hotlines to 1-800 numbers. Now consumers are being charged high prices for making calls to 1-800 numbers that they expect to be toll-free.
Consumers call 1-800 numbers and are unknowingly transferred to either 1-900 numbers, numbers offshore, or have their charges reversed to the phone line through Automatic Number Identification (ANI). Many of these calls are being placed by children calling teleporn and psychic hotlines without their parents' knowledge.
While TDDRA gave 1-800 numbers special legal status as free to caller to prevent this problem, an exemption was made to protect legitimate businesses using 1-800 numbers if they obtained a `preexisting agreement' with the caller. Scam operators are abusing this loophole, and my legislation seeks to cease these abuses.
H.R. 1559 protects unsuspecting callers from being charged for calls they expect to be toll-free--thereby preserving the toll-free status and integrity of the legitimate $8 billion 1-800 industry--by requiring stricter cost disclosure requirements to ensure that consumers clearly know when there is a charge for a call, how much the charge will be, and how they will be billed.
Information providers (Ips) operating over 1-800 numbers must obtain legal, informed consent through either a written preathorize contract with the caller, or through the use of a preamble at the start of all non-toll-free 1-800 calls.
The written contract between the IP and the caller must include the rates of service, the IP's name, business address and phone number, the IP's pledge to notify subscribers of future rate changes, and the signature of a legally competent subscriber. Importantly, the contract must allow the subscriber to choose the method of billing: the phone bill, credit card, calling card or pre-paid card.
In the absence of a written presubscription agreement, callers may be given access to information services over 1-800 numbers only after first hearing an introductory message that clearly states that there is a charge for the call and the service's total cost per minute. Importantly, it must explain that the charges must be billed on either a credit, calling or pre-paid card, ask the caller for the card number, explain that charges for the call begin at the end of the introductory message, and that the caller may hang up at or before the end of the message without incurring any charges whatsoever.
Both of these options ensure that consumers know there is a charge for the information service and that they are giving their consent to be charged.
Finally, the bill clearly states its intent to only apply to information services provided over the phone and not to goods purchased over 1-800 numbers.
By requiring that all information providers secure a caller's true informed consent, the scam operators will have to close up shop. This will stop consumers from being victimized by phony toll-free 1-800 numbers and protect the legitimacy of the $8 billion unlawful 1-800 toll-free number business.
Bart Gordon.
During the Committee's consideration of HR 1555, I offered an amendment to clarify the roe of the FCC in setting standards for cable compatibility. My amendment adds Section 624A of the 1934 Communications Act, and requires the FCC to set minimal technical standards when implementing regulations to ensure the compatibility between cable `set-top' boxes, televisions, and video casette recorders. The amendment I offered simply states that on the issue of cable compatibility standards, as provided under Subsection (c)1(A), government standards should prescribe the minimum degree of common design and operation necessary to achieve this end. My amendment also adds language to Section 624A to remind the FCC that its efforts to ensure cable compatability should not result in a preference for one home automation production over another.
I want to underscore that my amendment does not deny FCC a role in developing or enforcing standards for telecommunication networks. It merely clarifies that when the FCC is considering a standard to meet the requirements of Subsection (c)1(A), it should not implement a standard which is too broad or attempt to solve more than what was required of Subsection (c)1(A).
Likewise, my amendment does not affect Section 203 H.R. 1555, which ensures that `set-top' boxes will be made available to consumers through retail stores. I support the effort by the Committee to allow retailers to sell set-top boxes, and my amendment does not conflict with the directive that the FCC assure the retail commercial availability of cable converters.
In short, I believe the FCC has a role in facilitating marketplace solutions for incompatible networks and products. But the FCC should intervene in this process only when industry efforts have failed, only when it is necessary for the benefit of consumers, and only to the extent necessary to achieve basic interconnection and interoperability.
Finally, I believe consumers should be given the freedom to decide what technologies they use in their home. My amendment will ensure consumers have this freedom by protecting them from overbroad technology standards which decrease technology innovation, decrease competition, and limit choice.
Anna Eshoo.
Over a number of years, Congress has sought to update antiquated communications laws while remaining true to the three core principles of the Communications Act of 1934 that have guided communications policy for decades: universal service, diversity, and localism. These three principles have served our nation well and have helped bring Americans the finest communications technology and services in the world. The challenge for policymakers is to reform the rules in a way that retains these core values as they are impacted by two new factors: rapid technological change and fierce competition.
We believe that H.R. 1555 goes a long way in accomplishing this important goal. Indeed, the bill contains many provisions that we strongly support. In fact, many of the key policy proposals embodied in the legislation trace their roots to the Markey-Fields legislation of last year (H.R. 3636), which was approved by the House by a 423-4 vote.
The core provisions of the bill encourage the deployment of advanced communications technologies by injecting competition into the market for local telephone service and the market for delivery of interactive services and video programming. Competition will spur technological advance and innovation in services offered to the public. We strongly endorse a competitive model for our communications marketplace.
Moreover, H.R. 1555 recognizes that concomitant with creating and fostering competition, preserving and enhancing the provision of universal telephone service are vital components of national telecommunications policy. Accordingly, the legislation establishes a mechanism to ensure that universal service is preserved and enhanced. We believe that there must be a process to ensure that as change and competition are introduced into the local telephone market, that the long-standing policy of universal service not only endures but is updated to evolve with the rapid changes in the communications industry. We commend the authors of the legislation for embracing this important telecommunications policy principle.
The legislation, however, has two glaring flaws at this point. The two fatally flawed areas of the bill, as reported by the Committee, are the cable and broadcasting provisions in Titles II and III, respectively. These provisions are flawed because they fundamentally depart from the competitive model upon which the rest of the bill is based. Instead of preserving and strengthening the principles of diversity and localism, the broadcasting provisions undermine them. We believe these provisions are anti-competitive, anti-consumer and contrary to the public interest. Instead of looking to the future, these provisions return us to the policies and practices of the past.
The drastic and indiscriminate elimination of mass media ownership rules proposed by this bill, in response to pressure from special political and corporate interests, would eviscerate the public interest of diversity and localism. The proposed changes will not create entertainment and information sources for consumers. Nor will they enhance the ability of the broadcasting medium to meet the informational and civic needs of the communities it serves. Instead, H.R. 1555 will concentrate great wealth and media power in the hands of a few.
The mass media provisions of H.R. 1555, which were adopted in the form of an amendment offered by Mr. Stearns (R-FL), are sweeping in scope. The `network duopoly' rule is repealed. The broadcast-cable crossownership rule is repealed. The network-cable crossownership rule is repealed. The broadcast-newspaper crossownership rule is repealed. National limits on radio station ownership are repealed. Limits on local ownership of radio stations are also eliminated. The `one-to-a-market' rule is repealed, allowing for the creation of television duopolies in local markets. Finally, the national audience reach limitation for television networks is allowed to double from 25 percent of the country to 50 percent.
Although we will address each of these rule changes separately, it is important to note at the outset that their aggregate effect is to encourage the rapid consolidation of mass media ownership in this country and the elimination of diverse sources of opinion and expression. They are a powerful toxin to democracy and a death knell for community control of its own media.
H.R. 1555 will intensify control of information and opinion in entire cities and regions of the country. Mass media outlets will increasingly become beholden to policies and programming originating in New York and Hollywood. In this new electronic environment, diversity and localism will suffer and large segments of the population will enjoy fewer and fewer options.
H.R. 1555 would encourage a `communications cannibalism' in mass media properties on both the national and local levels. We believe that the inexorable (and rapid, if deregulation in the radio industry offers any omen) consolidation of media--television, radio, cable, and telephone--by a very small handful of very large companies will have adverse consequences for the nation.
Our system of democratic self-government relies on an informed citizenry. The broadcast deregulation provisions in Title III subject mass media outlets to a new `digital Darwinism,' where only the largest entities will prevail. Moreover, because diversity of ownership is our only proxy for diversity of viewpoints, elimination of ownership limits eliminates the best tool we have to help ensure that the public has access to a wide array of viewpoints in local news and information.
The limits on mass media ownership that this bill would sweep away were not created solely by liberals. On the contrary, both liberals and conservatives, Democrats and Republicans, have insisted on such rules and developed them in bipartisan fashion over a number of decades. In fact, the broadcast-cable crossownership rule was part of legislation sponsored by Democrats and signed by President Reagan in 1984. The network-cable and the broadcast-newspaper crossownership rules were adopted by the FCC during the Nixon and Ford Administrations.
Why were these rules developed? They were borne from experience. On the local level, powerful conglomerates in the 1960's and 1970's were amassing multiple ownership of media outlets. At the time, in the top 50 television markets (comprising 75 percent of the nation's television homes), 30 markets had one of the local TV stations owned by a major newspaper in the same market. By 1967, some 76 communities had only one AM radio station and only one newspaper, with cross-owning interests between the two. Fourteen communities had one AM radio station, one television station, and only one daily newspaper, all commonly owned. Moreover, in 1968 it was reported that the infant cable industry was already seeing a trend toward media concentration, with 30 percent of cable systems controlled by broadcasters.
Across the country, media moguls were assembling what was called a `Royal Flush.' Atlanta, Georgia, was one example where a single company owned:
A VHF television station;
a high power AM radio station;
an FM radio station;
the cable system; and,
a newspaper.
All in one community. Needless to say, if an entity obtained a Royal Flush, it was the hand.
H.R. 1555 would allow local media concentration to take root in communities across the nation in a manner that would make Citizen Kane look like an underachiever. It would go far beyond the Royal Flush--it would rig the game against all but the most powerful conglomerate players.
While H.R. 1555 does allow the FCC to look at `undue concentration' of media voices within a local community, it authorizes it only after the acquisition of a second nonbroadcast mass media property. In other words, the FCC is powerless to address media concentration issues under H.R. 1555 if a communications conglomerate aggregates broadcast properties and holds only one nonbroadcast property such as a newspaper, cable system or phone company. The new Royal Flush would allow the following:
A VHF television station;
a UHF television station;
an unlimited number of AM radio stations;
an unlimited number of FM radio stations;
a wireless cable system; and
a daily newspaper.
Again, in this scenario, the FCC could not address concentration issues. The legislation specifically prohibits the FCC from looking at mass media concentration issues until a broadcast licensee combines with a second nonbroadcast mass media property. Only if this new Royal Flush (and we recognize we're stretching the card game analogy at this new Royal Flush already has more cards than poker would allow) tried to obtain a cable system, another newspaper (if another one exists), or was bought by the local phone company, could the FCC disallow such concentrated ownership.
We believe the sweeping broadcast deregulation contained in Title III is contrary to the public interest because it permits an unprecedented and dangerous combination of power in just a few individuals at the local level.
We turn now to a critique of the individual provisions.
Repeal of the `Network Duopoly Rule'
The network duopoly rule prohibits anyone from owning 2 TV networks. This rule was put in place in 1941 and led to the break-up of NBC Red and Blue. NBC Blue became the ABC television network. While this rule would allow ABC to go out and start a new network, it also permits ABC and NBC to merge back together again after a 50-year hiatus. It would allow FOX to buy CBS. Yet allowing such buyouts and mergers to take place will not inject competition into the marketplace.
After waiting decades for a viable fourth national television network to merge (FOX), and with Paramount and Warner Brothers attempting to create a fifth and sixth competing network, H.R. 1555 would risk a decrease in the number of independently-owned television networks in the country by repealing this rule.
Rather than returning network ownership rules to the 1930's, this provision should be modified to prevent consolidation of television network ownership. The bill should stipulate that an entity can own 2 TV networks provided these networks are created, and not simply the result of a purchase or merger of existing television networks.
Repeal of the TV `one-to-a-market' rule
The bill would allow ownership of 2 TV stations within a market. We believe that great care must be taken when the FCC allows for ownership of two television stations within a local market under this legislation. Even if the dominant VHF television station in a locality purchases the weakest UHF station, for example, that dominant VHF station will likely become more dominant. In general, we do not see the overriding need to repeal this rule. Diminution of diversity in local markets across the country will be a direct result.
Repeal of the Broadcast-Cable Crossownership Rule
This rule prevents TV-cable combinations within local markets. Adopted by the FCC during the Nixon Administration, this rule helps to protect fair completion in the local media marketplace and safeguards diversity in mass media outlets within local communities. Simply put, this rule prevents a cable system from acquiring a local TV station in the same city.
Television broadcasters today rely upon so-called `must carry' rules to ensure their carriage on local cable systems. These rules are currently subject to litigation in the courts.
If the court invalidates these rules, the broadcast-cable crossownership repeal contained in H.R. 1555 could have adverse consequences. For example, if a cable company has a financial interest in one of the TV stations within the local market (or 2 TV stations if it is one of the new local duopolies permitted by H.R. 1555), some or all of the remaining broadcasters may be refused carriage or discriminated against in such carriage. Without safeguards, repeal of this rule would allow a local cable system-local television combination to utilize the bottleneck of cable system access to stifle media voices and distort the advertising market.
Yet even without any judicial decision with respect to the status of must carry obligations, repeal of this rule will have anti-competitive consequences. H.R. 1555 does not extend must carry rights to any new channels offered by broadcasters. In developing new section 336 of the Communication Act of 1934, the authors of H.R. 1555 stipulate that if the Commission decides to award licenses for advanced television services, the supplementary services or channels that a broadcaster may develop utilizing digital compression are not granted must carry right son cable systems.
Although numerous broadcasters in a locality might be using digital compression technology to create 3, 4, or 5 additional TV channels each, the cable system is not obligated to carry these additional channels. This is a competitively neutral provision only if all the local television stations are treated by the cable system in similar fashion.
With repeal of the broadcast-cable crossownership rule, however, the local cable system could immediately favor the television station in which it had a financial interest. The cable system could do this simply by carrying the additional or supplementary channels and services of that TV station and denying such opportunity to the other broadcasters within the same community.
Repeal of the Network-Cable Crossownership Rule
This rule, which was also adopted by the FCC in 1970 during the Nixon Administration, prohibits TV network and cable company combinations. Under the bill, TCI and NBC could now merge. Time Warner could buy CBS. If a national TV network owns a cable system serving a particular locality, it would have tremendous incentive to bypass its affiliate and put its national programming directly on the cable system. We believe repeal of this rule is unwarranted and would have anticompetitive effects.
Repeal of the Broadcast-Newspaper Crossownership Rule
This rule prohibits local television station and local newspaper combinations. This rule was adopted in 1975 by the FCC during the Ford Administration. We believe that repeal of this rule is unwarranted. There is no clamor to repeal it. Many communities in this country have become one-newspaper towns. We believe it is important to safeguard diversity by retaining this rule.
Deregulation of the national TV audience reach limitation
The bill would lift the current cap limiting television networks to 25 percent coverage of the nation to 35 percent immediately. It would then lift the cap to 50 percent 1 year later.
We believe that the relationship between networks and television affiliates has served our country well. H.R. 1555 does more than tip the balance between TV networks and their affiliates toward the networks. It completely disrupts that balance.
Local broadcasters in communities across the country are fighting to remain local broacasters in this legislation. Increasing the national audience caps to 50 percent puts localism in jeopardy. The doubling of the audience cap will hurt diversity.
The nature of the network-affiliate relationship today is that networks must count on their affiliates to air national programming while affiliates count on the networks to provide national news, sports and entertainment to add to a mix of local news and independently-produced programming. Tilting the balance too much toward the networks will create a concentration of nationally-produced programming and corresponding loss of locally-oriented programming.
If networks can own stations that cover the largest markets in the country, we lose the tradition--and the capability--of having local affiliates pre-empt network programming to bring viewers important local news, public interest programming, and local sports. As Ed Reilly, President of McGraw Hill Broadcasting Company said in testimony before the Committee: `A network-owned station almost never preempts a network program to cover a local sports event or to air a local charity telethon.'
Because American society is built upon local community expression, the policy favoring localism is fundamental to the licensing of broadcast stations. Localism permits broadcasters to tailor their programming to the needs and interests of their communities. Moreover, as trends toward national homogenization of the media grow--for example, cable channels and direct broadcast satellite service--localism increases in importance. Expansion of national media outlets increases the need for local media outlets with the locally ubiquitous reach of broadcast television stations.
In short, relaxation of the national audience caps is an anti-competitive proposal. Deregulation of the audience cap will intensify concentration in the hands of the vertically-integrated, national television networks. Once they are permitted to gobble up additional local stations, these mega-networks will have an increased ability to sell national advertising by controlling local distribution.
No one will argue that, in general, it is not more efficient to simply make local broadcast stations passive conduits for network transmissions from New York. Localism is an expensive value. We believe it is a vitally important value, however, and like universal service, it is a principle of communications policy rooted in the Communications Act of 1934. It should be preserved and enhanced as we reform our laws for the next century.
Elimination of national and local radio station ownership limits
In many respects, the complete elimination of ownership restrictions in the radio marketplace has received scant attention as compared to the other mass media provisions in the bill. We feel that radio is an important and vibrant medium of mass communication and that local ownership rules to protect diversity and localism are needed. The radio industry has already been deregulated substantially in the last few years.
Prior to September 1992, FCC rules permitted an individual to own a maximum of 12 AM stations and 12 FM stations. In September 1992, the national ownership limits were increased to 18 AM and 18 FM stations. They were allowed to increase to the current rules of two years later. The current FCC rules limit national ownership to 40 stations (20 AM/20 FM) and limit local ownership to 4 stations (2 AM/2 FM).
We believe that the rules promulgated by the FCC in 1992 have had direct and detrimental effects on the ability of some stations to compete in both the major metropolitan markets and the smaller and medium-sized markets associated with rural areas. In some instances this has hindered certain stations' ability to continue to provide the diverse array of viewpoints and programming choices that the public has learned to enjoy and expect.
The adverse effects of radio deregulation are only now coming to light in many localities. We believe it is ill-advised to eliminate local ownership limitations until a more thorough analysis of the consequences such deregulation is already having on localism and competition has been completed.
Some of the downside effects of radio deregulation since 1992 include the increased number of closings, acquisitions, and mergers that resulted in part from the inability of small independently-owned radio stations to compete with stations owned by capital-rich national broadcasting chains, and a corresponding harm to media diversity.
As a result of loosened ownership restrictions in radio, stations are purchased in many situations in order to eliminate them as competitors. Typically, the new management then re-formats the programming for the combined radio stations solely to attract the largest combined audience, thus further reducing diversity.
In general, radio duopolies have created enormous pressure to cut costs and achieve economies of scale, each time to the detriment of the public interest in the fields of news and public affairs. The duopolization or consolidation of American radio continues at a rapid pace. In March, 22.2 percent of all 10,121 commercial radio stations in the country were involved in a Local Marketing Agreement (LMA) 1
[Footnote] or duopoly combine. In April 1993, the duopoly/LMA percentage stood at just 8.8. The top-100 markets, indeed the top-50, have experienced the strongest duopoly growth in the months from November 1994 through March 1995. In Arbitron-rated markets (4,105 stations), industry consolidation stands at 44.5%, or 1,826 stations in duopolies and LMAs in markets 1-261. In the top-50 markets, the percentage is 52.3% (667 of 1,276 stations). 2
[Footnote]
[Footnote 1: An LMA is a type of joint venture that generally involves the sale by a licensee of discrete blocks of time to a broker who then supplies the programming to fill that time and sells the commercial spot announcements to support it. In radio, the FCC requires that a licensee's time brokerage of any other radio station for more than 15 percent of the brokered station's weekly broadcast hours results in counting the brokered station toward the brokering licensee's national and local ownership limits.]
LMAs, which first showed up in 1990 and until 1993 served as a significant forerunner to the industry's consolidation, represent a phenomenon well past its peak. Their number has declined significantly over the last year as the number of duopolies has increased. The duopoly era started with the Fall 1992 Arbitron rankings. See `Radio Business Report' (hereinafter RBR), April 10, 1995, at 14.
Television LMAs enable separately owned stations to function cooperatively and are currently not subject to FCC guidelines of control and attribution. They represent a device to circumvent the ownership provisions--and thus the elements of licensee responsibility--of the Communications Act. LMAs would be legitimized under H.R. 1555.
According to `Broadcasting & Cable,' June 5, 1995, at 8, the number of LMAs where one operator manages two TV stations in a market now stands at least thirty-six, including 10 in the top-30 markets.
[Footnote 2: See `RBR,' April 10, 1995, at 14.]
It is clear that the changes enacted by the FCC in 1992 have spurred a rapid consolidation by a few players in each market as well as the growth of a few large chain operators who dominate their individual markets both in audience and revenue share. For example, in Syracuse, NewCity controls 50.3% of the revenue; in Louisville, Clear Channel/Snow controls 46.3%; in Cincinnati, Jacor controls 42.8%; while in Modesto, Reno, and Spokane, a single company, Citadel, controls, respectively, 49.6%, 43.9%, and 40.9% of the revenue in these markets.
At the end of 1994, duopolies controlled 35.1% of the 12+ audience shares and 48.5% of the revenue in the 144 major markets surveyed by James H. Duncan, Jr., publisher of Duncan's American Radio, Inc. Even without further deregulation, Duncan predicts that given both a healthy general and radio economy, by the end of 1995, duopolies will control about 50% of the 12+ audience shares and 64% of revenue. Duncan believes that by the end of 1997 the duopolization process will be fairly mature, at which time `. . . about 60% to 65% of 12+ shares will be controlled by duopolies, and perhaps 72% to 77% of revenue shares.' 3
[Footnote]
[Footnote 3: See `RBR,' September 9, 1994, at 9.]
As if to confirm these projections, `RBR,' in its issue of April 3, 1995, reports that in Buffalo, which it describes as one of the most completely duopolized markets in America, four (4) owners, all duopolies, controlled 73.9% of the 12+ shares in the fall of 1994, whereas in the spring of 1992 seven (7) owners, with no duopolies, controlled 75.4%.
It is clear that the radio deregulation since 1992 has already led to a loss of ownership diversity. It has also led to a loss of jobs. In a report on radio station ownership released in November, the FCC's Mass Media Bureau tentatively observed that with some 500 stations changing hands under duopoly, an average of 5 people per station lost jobs or a total of 2,500 eliminated positions. 4
[Footnote] We believe that H.R. 1555 needlessly accelerates this trend and will result in a dramatic loss of both diversity and jobs in a historically vibrant medium. Finally, the considerable consolidation in the radio industry that has occurred under limited deregulation provides a useful, if not perfect, parallel for the likely effects of deregulation of national and local ownership rules in the television broadcast industry.
[Footnote 4: See `Radio Station Ownership Report,' Mass Media Bureau, FCC, October 20, 1994, at 30.]
In spite of the manifold benefits bestowed by H.R. 1555 on the nation's television industry, the bill fails to elevate the public interest obligations of broadcasters to meet the needs of parents and children. It is apparent that broadcasters are failing to meet the informational and educational needs of the child audience as required by the Children's Television Act of 1990. Moreover, the issue of increasing levels of violence in our society has focused attention on the graphic violence and other objectionable programming often found on both on broadcast and cable programming.
Parents are right to be concerned about the effect of violent television programming on children. Many parents are aware that children in this country spend more time watching television than in school. The American Psychological Association reports that by the time a child finishes elementary school, the typical American 11-year-old will have watched 100,000 acts of violence and 8,000 murders on television. This is not a new issue, but the consequences of our failure to address it is becoming acute.
Back in the 1950s, Senator Estes Kefauver denounced the rise in `televiolence'. He linked it to the rise in violent crime and took particular note of the ways in which teen criminals modeled themselves after television gangs. Then in the 1960s, Senator Thomas Dodd held hearings on the topic of television violence. The networks responded by promising to reduce violence, which they did, for a while. Psychiatrists call this a `flight into health'--a temporary escape from therapy that leaves the problem untreated.
In 1993, the Subcommittee on Telecommunications and Finance held five hearings in the last Congress on the subject of televised violence (see `Violence on Television,' Hearings before the Subcommittee on Telecommunications and Finance of the Committee on Energy and Commerce, Serial No. 103-79.) Twenty-nine witnesses testified. As a result, Congress and much of the public is now aware of the cumulative research linking television violence to increased aggression and violent behavior.
The Subcommittee received testimony on several negative effects from the overload of violent images on children. Advertisers spend $30 billion annually using the medium of television to influence behavior because they know that it works. It should come as no surprise, then, when psychologists and researchers document that negative lessons taught by this same medium can effectively teach negative behavior.
For example, Dr. William Dietz, on behalf of The American Academy of Pediatrics, testified that epidemiologic and experimental studies have demonstrated the association between the viewing of televised violence and aggressive behavior.
`The absence of the consequences of the violence that they see, and the rapidity with which difficulties are resolved by the use of violence, increase the likelihood that violence will be among the first strategies that a child selects, rather than the last. Also, the rewards that the heroes receive for their violent behavior legitimize and tacitly endorse violence as a means of solving problems. Finally, the frequency with which children view violence, and the lack of long-term consequences for the victims of violence, desensitizes children and makes them more passive to acts of violence and less likely to intervene when violence occurs.'
The Surgeon General's Report (1972), the National Institute of Mental Health Report (1982), the Carnegie Council on Adolescent Development (1992), the American Medical Association (1976, 1982, 1993), and the Centers for Disease Control (1993) have all confirmed the adverse effects of televised violence on the shaping of a child's values and perceptions.
Despite repeated documentation of what society knows to be a serious problem, solutions have proved elusive. And when the hot glare of Congressional attention turns elsewhere, violence on television begins to increase again.
That is why we have concluded that parents must be given the technological ability to block violent shows when they are not in the room to supervise their children. Technology exists--called a V-Chip (`v' for violence) or C-Chip (`c' for children)--that allows parents in their own homes to block, in advance, any program rated violent. The decision to block is the parent's; the decision to rate is the broadcaster's. In this way, we can facilitate the job of parenting in the pervasive presence of television without having the government deciding which shows are acceptable and which shows are not.
The V-Chip can be made available in all television sets very inexpensively because of previous action taken by Congress and by this subcommittee. In 1990, we passed the Decoder Circuitry Act requiring all new TV sets to include the electronics that make it possible for the deaf and hard-of-hearing to receive closed-captioning. The same electronics have tremendous unused capacity to read any codes sent to the viewer embedded in the TV signal itself.
Polling and reader surveys suggest that the public wants this blocking technology. For example, a readers survey by USA Today in 1993 found that 68 percent of its readers supported the V-Chip; by 1995, this support had risen to 90 percent.
A trial of the V-Chip in Canada by Shaw Communications has already demonstrated the ease with which this technology can block shows at varying ratings levels. In the United States, the Electronics Industries Association, on behalf of the TV set manufacturers, have already settled on a standard for the V-Chip and some manufacturers are considering including the V-Chip in some sets. Moreover, the National Cable Television Association has come out in support of such blocking technology, although with the important condition that they will not implement it as long as their broadcast brethren refuse to implement it too. And that is the problem--broadcasters in particular are unwilling to send information to parents electronically. Without that signal, the V-Chip won't work.
It is understandable as a business matter that broadcasters would resist technology that has the potential to reduce viewership. Less viewers means less Nielsen ratings and, therefore, lower advertising revenues. However, as a public policy matter, the V-Chip facilitates the protection of children by concerned parents as we enter the world of 200-channel TV. The task of parenting in that world will be infinitely more difficult than a decade ago when television was still dominated by just three big networks.
Moreover, the audience lost through the V-Chip--children--is precisely that segment of the audience that programmers say they are not trying to reach when they write violent scenes into scripts.
In today's world, where most children have two working parents, it is unrealistic to expect that mom or dad will sit with their child for hours watching television and be there to turn off violent programs. Parents are perfectly willing to take responsibility for the programs their children watch--but they need the ability to enforce their programming choices. It is the least restrictive means of accomplishing the compelling governmental purpose of protecting the health and welfare of children and increasing the likelihood they will become productive, nonviolent citizens.
This approach strikes a reasonable balance between the needs of parents in today's violent society and the business concerns of both broadcast and cable executive.
The V-Chip should be added to this bill.
In addition to its failure to do anything to reduce the harm to children from violent television, the legislation does nothing to restore positive programming for children.
The profound influence of television on children and the limited number of educational programs for children compelled Congress to enact the Children's Television Act in 1990. This was the first time that Congress recognized children as a special audience that deserved special attention from broadcast licensees. Congress concluded that television broadcasters were failing to provide positive informational programs for children and were increasingly squeezing 14 minutes or more of advertising into half-hour shows. Indeed, a recent report by Squire Rushnell, former vice president for children's programs at ABC-TV, found that the availability of educational programs for children had gone from approximately 11 hours per week on the three networks combined in 1980, to approximately 1.5 hours per week in 1990.
The Act contained the following two major provisions:
(1) reinstatement of commercial time limits during children's programming to not more than 10.5 minutes/hour on weekends and not more than 12 minutes/hour on weekdays.
(2) a requirement that commercial television broadcast licensees, as part of their public interest obligations, meet the educational and informational needs of the child audience through their overall programming as well as through programming specifically designed to meet the educational and information needs of children.
The Act was designed to increase the amount of educational and informational television programming available to children and to protect children from over-commercialization of programming.
The broadcasting community's failure to do so has led the Federal Communications Commission to institute a rulemaking on the Children's Television Act. Unfortunately, the rulemaking suggests requiring broadcasters to air as little as one hour per week on their channel to be in compliance with the Act. This laughably low minimum standard is, nevertheless, opposed by the National Association of Broadcasters.
We believe that the failure of H.R. 1555 to address this issue, in the context of deregulation that will boost the value of broadcast properties by millions of dollars (the licenses for which broadcasters receive from the public for free), is an abdication of our responsibility and another major deficiency in the bill.
H.R. 1555 goes far astray from its premise of `competition before deregulation' with respect to the provisions in Title II of the bill deregulating the cable industry. Much like the broadcast deregulation provisions in Title III, these provisions look backward not forward and repeat the mistaken policies of the past.
The cable industry was deregulated once before. And when it was, in 1984, the industry took advantage of its monopoly status and raised rates on subscribers. According to the General Accounting Office, average cable rates rose at roughly three times the rate of inflation. Residents of Newark, New Jersey saw rate increases of more than 130 percent. Residents of certain communities in Connecticut saw their rates rise 222 percent. Cable companies charged $5 per month just to use the remote control.
In response to consumer complaints, Congress passed the 1992 Cable Act to restrain hyperinflationary monopoly price hikes and to help create competition to the industry by making access to cable programming available to competitors. Cable rates stabilized and costs to consumers for equipment and installation went way down.
The FCC has estimated that the 1992 Cable Act has saved consumers approximately $3 billion. H.R. 1555, however, allows cable monopolies to strip those savings from consumers by permitting the cable industry to return to past practice and gouge consumers BEFORE competition arrives.
The cable rate provisions in the Cable Act are temporary. They are specifically designed to protect consumers until effective competition offers them an affordable marketplace choice. When effective competition arrives, rate restrictions on the incumbent cable company cease to exist. It's that simple.
The bill, however, deregulates rates for cable programming services for so-called `small cable systems' immediately upon enactment. These are systems which largely serve rural America. As a result, it will be consumers in rural America who see their cable rates rise first. This provision deregulates any cable system which has less than 1 percent of all cable subscribers (approximately 600,000 subscribers) and is not affiliated with an entity that earns in excess of $250 million in gross annual revenues. According to the National Telecommunications and Information Administration (NTIA), this provision would deregulate cable systems affecting 28.8 percent of all cable subscribers.
These systems would be deregulated irrespective of the fact that they would have no effective competition in the marketplace. Nor would the FCC have any residual authority to rein in renegade operators who raise rates egregiously. In short, almost 30 percent of the country's cable customers would be left without any protection with respect to rates charged for popular programming such as CNN, ESPN, CSPAN and Discovery.
For the big cable systems--those affecting the 70 percent of cable consumers not served by the `small systems'--deregulation comes a mere 15 months after the date of enactment. Again, regardless of whether or not there is not effective competition to these cable systems, they are deregulated. And, as in the case of small cable systems, the FCC would have no residual authority to protect consumers when monopoly rate gouging reappears.
To suggest that there will not be some unscrupulous cable operators who take advantage of the utter lack of an affordable marketplace choice to jack up their rates is pure folly. It is imperative, therefore, either to retain consumer protection provisions to rein in the industry renegades or to continue regulating monopolies until effective competition arrives.
Deregulation of the cable industry is based on the flawed supposition that competition is coming soon and that the industry needs to be freed from regulations so as to obtain capital to compete against the local phone companies. Implicit in the supposition is that the cable industry is suffering greatly from rules that prevent it from charging monopoly prices and that banks will refuse to lend them money until operators can charge monopoly rents.
Although it vehemently objects to the imposition of rules to protect consumers and promote competition, the cable industry is not faring poorly under regulation. For example, in a recent article in USA Today (5 31 95, at 1B), it was noted that the nation's largest cable company, Tele-Communications Inc., added 5.4 percent more customers in 1994; the second largest cable company, Time Warner, grew by 4 percent; and the third largest, Comcast, grew by 4.4 percent. Cable companies also saw a 4.8 percent spike in the number of of customers who bought premium channels.
In addition, in the first quarter of 1995, operating cash flow for large cable MSO's was up. According to a recent article in Cable World (6 19 95), TCI's first-quarter 1995 operating cash flow was up $14 million to $464 million over 1994 same-period totals; Time Warner's was up 5 percent to $256 million, Jones Intercable was up 8 percent; Comcast Corp.'s rose to $217.2 million from 141.5 the previous year; and Cablevision System's Corp.'s jumped 36 percent. Overall, the article also reports, cable stocks (Kagan MSO Average) have risen 13 percent in the first 6 months of 1995.
Finally, the number of cable channels has not dwindled and faded under regulation. On the contrary, it has grown, in spite of, or perhaps because of, regulation of the industry, from 79 channels to 128 channels in 1994.
According to the FCC, out of the more than 11,000 cable systems in the United States, less than 30 communities have seen their incumbent cable system deregulated because it met the effective competition test by having another competitor come to town in head-to-head competition. That's less than one-half of 1 percent of all systems nationwide and a minuscule amount of subscribers. The idea that robust competition is going to materialize for the other 99.5 percent of cable systems within 15 months is dubious.
To be sure, the 18-inch direct broadcast satellite (DBS) systems are now operational and signing up customers. There are about 600,000 DBS subscribers nationwide today, representing less than 1 percent of the market. However, as long as DBS dishes cost $700 or $800 a piece, DBS will not be an affordable alternative for the vast majority of consumers.
And to be sure, the phone companies are coming. When and where? Nobody knows for certain. Their arrival in larger cities and towns could be 2 years away or 5 years away. For some rural areas it could be much longer. What we do know for certain is that there is no city, town, county, village, neighborhood or hamlet in the country that currently has the telephone company offering effective cable competition to an incumbent cable company.
It is clear that H.R. 1555 deregulates cable systems before effective competition arrives to offer consumers an affordable alternative. We believe it is obvious that cable rates will rise dramatically as a result.
Not only does H.R. 1555 prematurely deregulate cable monopolies, it contains provisions that would snuff out fledgling competitors before they can take wing in a community. Section 202(g) of the legislation eliminates prohibitions against predatory pricing. It would allow cable monopolies to target unfairly a new competitor's customers for temporary lower prices and special offers. These lower prices and special offers to undercut a competitor would not be available to all subscribers in the cable systems' franchise areas. Rather, other subscribers would subsidize lower rates to undercut competitors. In this way, cable monopolies can crush competition in its cradle.
Nascent competitors, such as wireless cable systems and direct broadcast satellite (DBS) systems, would suffer greatly from this anticompetitive provision. H.R. 1555 would significantly thwart the ability of consumers to reap the benefits of competition in the form of greater choice, higher quality, and lower price, if section 202(g) is retained in the bill.
Not content simply to deregulate monopolies before competition arrives, H.R. 1555 also contains provisions that frustrate, rather than promote, the emergence of a competitive market. Instead of coddling communications monopolies, the provisions of Title II deregulating the cable industry should be drastically modified to remain consistent with the underlying premise of the legislation. The current cable provisions constitute a glaring flaw in a bill whose ostensible purpose is to promote competition in the telecommunications marketplace.
H.R. 1555 also modifies the complaint threshold that must be met to review cable rates charged to ascertain whether they exceed legal limitations. Current law allows the admittedly low threshold of a single consumer complaint to trigger FCC analysis of a cable operator's rates. The legislation requires that 10 consumers or 5 percent of all subscribers of a cable system, whichever is greater, must complain to the FCC to induce a rate proceeding. In other words, H.R. 1555 would require that in a cable system of 20,000 subscribers, 1,000 consumers would have to complain.
Increasing the complaint threshold merely to 10 subscribers would have a significant effect. According to the FCC, some 2,281 communities had a single consumer complaint; 1,383 communities had more than one but less than five complaints; and only 124 communities had more than 5 consumer complaints. Moving the complaint level to 5 percent of subscribers is a clear attempt to create an impossibly high threshold in order to insulate cable companies from provisions originally designed in the Cable Act of 1992 for consumer protection and empowerment.
Finally, if there was any attempt to make government procedures less bureaucratic and FCC procedures more consumer-friendly, it was not in evidence in the drafting of these provisions. The legislation does not allow for the 5 percent consumers complaint threshold to be met by having 1,000 consumers sign a petition. In Section 202(f)(1), the legislation requires that consumers `file separate, individual complaints' against rate increases. It is ironic that when it comes to protecting cable giants, the legislation is not only bereft of consumer-friendly provisions, but instead endorses more bureaucratic forms, more cumbersome regulations. So much for getting Washington off the backs of the people.
We believe that the final bill should balance the introduction of competitive markets with measures designed to protect ratepayers, new market entrants and the consuming public from potential monopoly abuses. Universal service, diversity and localism should remain our guide stars as we develop a telecommunications blueprint for the 21st century. We look forward to working with all our colleagues on achieving the enactment of a comprehensive pro-consumer, pro-competitive communications law this year.
At this point, however, the bill is unbalanced. It favors monopolies more than it breaks them down and encourages communications consolidation more than it creates new economic opportunities for small businesses and entrepreneurs. And in legislation that affects multibillion dollar issues and every American who owns a telephone or a television, it is woefully deficient in protecting consumers from potential monopoly abuses, or empowering them with new technology. It is our hope that these provisions can be amended and improved during further deliberation of the bill in the House.
Edward J. Markey.
Gerry E. Studds.
Ron Klink.
104th
Congress: Democratic Perspectives
103rd-107th
Congress Committee Activity