Deregulation and Re-regulation

With the administration of President Ronald Reagan came overall deregulation, and the cable industry was no exception. The Cable Communications Policy Act of 1984 stands as one of the most wide-sweeping regulatory efforts in cable television; it addressed several aspects of the industry, including subscription rates, service delivery, and programming. Up until that time, the local community that granted the cable franchise also regulated cable rates. With the 1984 act, if a cable company faced “effective competition,” they decided basic cable rates. As defined, this effectively included all cable systems. Rates for pay services were also left to their discretion. Cable operators were ordered to provide service to their entire service area, not only the more profitable neighborhoods. Local governments could require channels for public, educational, and government use (PEG channels) to carry city council meetings and the like; however, franchises could only request broad categories of programming, not specific channels. The 1984 act also banned the entry of telephone companies into the video-delivery business.

Although the 1984 act gave cable operators authority in assigning rates, they resented being forced to dedicate channels to local stations under the must-carry provisions. Turner Broadcasting had asked the FCC to abolish the regulations as early as 1980. In Quincy Cable TV, Inc. v. FCC (1985), cable operators challenged must-carry as a violation of their First Amendment rights by restricting and forcing speech. The U.S. Court of Appeals for the District of Columbia said the FCC failed to justify the regulation and ordered it dropped. The same court struck down the commission’s revised must-carry rules in Century Communications Corporation v. FCC (1987).

Increasing the presence of cable in households was an objective of the Cable Communications Policy Act of 1984. As seen in Table 1, this was apparently achieved, with a 186 percent increase in total subscribers from 1984 to 1992. However, as cable rates increased, so did public pressure on Congress to do something about it. The result was the Cable Television Consumer Protection and Competition Act of 1992. The definition of effective competition was again changed, this time such that almost all systems would be regulated. A crucial goal was to lower rates, but this did not occur. The 1992 act mandated regulating basic cable, but in response, operators created a la carte pricing by offering channels that used to be part of basic in packages. Generally, after the 1992 act, people paid more for the same number of channels than they had paid before.

The 1992 act included much more specific must-carry provisions and introduced an option for broadcasters: every three years they could either demand must-carry or they could negotiate to be paid for their programming under “retrans-mission consent.” Many cable operators said they would never pay cash for something available for free, but they often did arrange trades of promotional time on other cable channels. Retransmission consent did not apply to educational stations or superstations. From 1993 to 1997, must-carry was again challenged, this time in Turner Broadcasting System, Inc. v. FCC (1993). In a reversal, must-carry was upheld as constitutional.

The 1992 act also addressed ownership issues, especially vertical integration. By that time, many MSOs owned all or large portions of many programming channels carried on their systems. Industry analysts worried that cable channels that were not owned by cable operators would not be carried and, thus, not survive. This legislation prevented the owners of any video-delivery system, such as cable, from taking such financial and business interests into consideration as a condition for carriage.

Heralded as an overhaul of the original Communications Act of 1934, the Telecommunications Act of 1996 deregulated aspects of the entire communications industry, including radio, television, and cable, in an effort to introduce increased competition and, hopefully, market-driven high-quality service. For the first time, telephone companies were allowed to enter the video-delivery market, although the ban on telephone-cable cross-ownership was retained. It was the hope of the FCC that the 1996 act would give a competitive boost to developing video technologies, such as direct broadcast satellite (DBS). Rate regulations for all cable programming tiers were eliminated after March 1999, as was the need for a uniform rate structure. This time, effective competition for cable meant the presence of any other video provider. This applied to almost all systems and, therefore, gave rate-setting authority back to cable operators.