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OLR Research Report


November 12, 2009

 

2009-R-0417

HISTORY OF CABLE TV REGULATION

By: Kevin E. McCarthy, Principal Analyst

You asked for a history of cable TV regulation, particularly with regard to rates.

SUMMARY

Connecticut adopted legislation subjecting the cable industry to state franchising in 1963 and subjected the industry to Department of Public Utility Control (DPUC) rate regulation in 1965.

The Federal Communications Commission (FCC) adopted regulations covering certain aspects of the cable industry in the mid-1960s. In 1984, Congress passed legislation that, among other things, eliminated regulation of cable rates in most cases. In 1992 Congress reversed itself, allowing rate regulation. But the current federal law, adopted in 1996, significantly restricts the ability of state and localities to regulate the cable industry. It only allows rate regulation for the basic service tier (primarily the broadcast channels). Moreover, franchising authorities (in Connecticut, DPUC, municipalities in most other states) can only regulate rates for this service in accordance with FCC regulations and this regulation must end when a cable company becomes subject to “effective competition” as defined by federal law.

Connecticut has subjected cable companies to various requirements regarding community (public, educational, and governmental) access and has established a number of consumer protection provisions.

In 2007 Connecticut passed PA 07-253, which was designed to promote cable competition by allowing telecommunications companies to provide video services without having to obtain a time-limited franchise or being subject to rate regulation. The act also has parallel provisions allowing cable companies to obtain certificates subject to similar conditions in lieu of their franchises. In effect, the act has eliminated rate regulation and franchising in the cable industry. However, the act continued to require cable companies to comply with community access and consumer protection provisions of prior law and extended similar requirements to the telecommunication companies that provide video services.

FEDERAL LAW

Early Provisions

The FCC first established regulations in 1962 for cable systems using microwaves to rebroadcast TV signals and subsequently extended the scope of these regulations to cover all types of cable systems. The U.S. Supreme Court affirmed FCC's jurisdiction over the cable industry in United States v. Southwestern Cable Co., 392 U.S. 157 (1968).

In 1972, FCC adopted comprehensive regulations for the cable industry, which were designed to protect broadcasters from competition from cable. The regulations required cable companies to obtain a certificate of compliance from FCC before operating a system. They also covered franchise standards, signal carriage, and technical standards. FCC eliminated most of the franchise standards in 1977 and substituted a registration process for the certificate of compliance application process in 1978.

Rate Deregulation

In 1984, Congress adopted the Cable Communications Policy Act. The act established policies in system franchising and rate regulation, among other things. The act also defined jurisdictional boundaries among federal, state, and local authorities for regulating cable systems. With this legislation, Congress effectively eliminated state and local regulation of cable rates. The act deregulated cable rates in areas where there was “effective competition,” which it defined as any area where three or more unduplicated broadcasting signals were available within a cable operator's service area. As a result, almost all cable systems qualified for rate deregulation.

The act also eliminated the ability of franchising authorities to require that specific channels be carried by a system, instead allowing them to only require carriage of broad programming categories (e.g., a franchising authority could only require a system to carry sports channels, rather than mandating a specific channel). Another provision of the act allowed local broadcasters to either choose guaranteed carriage on a cable system or demand compensation from the cable system to carry their signal. Finally, the act banned telephone companies from offering cable service in their own franchise areas.

Rate Re-regulation

In response to rising cable rates following implementation of the 1984 act, Congress passed the Cable Television Consumer Protection and Competition Act of 1992. The 1992 act subjected cable rates to regulation under most circumstances. Cable systems were subject to rate regulation unless they were subject to effective competition, which the 1992 act defined more narrowly than prior law. Under the 1992 act, a system is only subject to effective competition if:

1. fewer than 30% of the households in the franchise area subscribe to the system's service;

2. the franchise area is served by at least two unaffiliated providers each of which offers comparable services to at least 50% of the households in the area and at least 15% of the households living in the area subscribe to these alternative services; or

3. the franchising authority itself operates a system that offers video programming to at least 50% of the households in the franchise area.

Under the 1992 act, franchising authorities were allowed to regulate rates for basic service if they demonstrated to FCC that they met various conditions, e.g., their regulatory system was reasonable and had procedures that gave interested parties a reasonable opportunity to present their views. The act allowed FCC to regulate rates for other service tiers (although not pay per channel or pay per program services) and service and installation charges if it found that a system's rates or charges were unreasonable under FCC regulations. The 1992 act had many other provisions. Among other things, it barred franchising authorities from granting exclusive franchises.

Restrictions on Rate Regulation

The 1996 Telecommunications Act eliminated FCC's ability to regulate the rates for non-basic service tiers for small systems as of 1996 and for all systems as of 1999. Under the act, a cable system may charge any rate for these services. But, it may not require a customer to purchase any additional service tier other than the basic services tier in order to have access to pay-per-view events or premium channels offered on an “a la carte” or individual basis (although the law does not require cable companies to offer channels or programs on this basis). The act also addressed a wide variety of other telecommunications issues.

STATE LAW

Franchising and Rate Regulation

Connecticut adopted legislation in 1963 (PA 1963, No. 425) requiring companies to obtain a franchise certificate from DPUC in order to operate a cable system in the state. PA 79-553 made franchise certificates valid for an unlimited time unless DPUC revoked or reassigned the certificate, but PA 81-393 repealed this provision. PA 83-49 limited the franchise term to 15 years and specified the franchise renewal procedure. (Subsequent legislation required companies to meet various criteria in order to get a renewal for more than five years, and additional criteria in order to get a renewal for more than 10 years.) PA 85-509 allowed DPUC to grant more than one certificate in each franchise area.

PA 1965, No. 175 subjected cable companies to DPUC rate regulation, among other things. PA 79-548 required cable companies to provide a refund or credit if their service was interrupted for 24 continuous hours or more. PA 92-137 required DPUC to resume regulating rates as soon as federal law permitted this.

Community Access

Starting with PA 80-82, the legislature imposed a wide variety of obligations on cable companies with regard to community (public, educational, and governmental) access. Among other things, the law requires cable companies to provide community access channels and to financially support community access.

Consumer Protection

Starting with PA 81-393, the law has required cable companies to notify their subscribers of programming and rate changes. PA 88-202 established billing standards for cable companies and required them to establish billing dispute procedures. The act also (1) established requirements for companies to describe their offerings and rates at specified intervals, (2) required companies to operate local business offices that are open during normal business hours, and (3) operate toll-free customer service lines during extended hours.

PA 05-253 and Deregulation

In 2007 Connecticut passed PA 07-253, which was designed to promote cable competition by allowing telecommunications companies to provide video services without having to obtain a time-limited franchise or being subject to rate regulation. PA 07-253 requires entities, other than cable companies, that seek to provide video services to file an application with DPUC for a competitive video service provider certificate. It requires DPUC to grant the certificate if certain conditions are met, (DPUC has granted this certificate to AT&T for its U-Verse service.) The entities that receive such certificates are called certified competitive video service providers. Providers are subject to some of the requirements that apply to cable TV companies, notably those regarding community access and consumer protection. But they are not subject to other requirements that applied to cable TV companies, including obtaining and renewing a franchise for a specified number of years and being subject to rate regulation. In addition, the providers are not required to build out their systems, i.e., offer to provide service to all households in their service territories. But they may not engage in redlining, i.e., they may not deny access to service to any group of potential residential customers based solely on the income of the residents in the area.

Under the act, 30 days after a provider offers service in a cable company's franchise area, the cable company may seek a certificate of cable franchise authority from DPUC. A company may also apply for this certificate for any area that was outside of its franchise areas on or before October 1, 2007. Unlike cable franchises, the certificates are valid indefinitely and do not have to be renewed.

All of the state's cable companies have applied for and received these certificates under these provisions. Under the act, companies with this certificate of cable franchise authority are not subject to rate regulation except as set forth in federal law. Federal law allows but does not require franchising authorities to regulate basic service rates. Thus, the act appears to terminate DPUC's ability to regulate a cable company's basic service rates once it obtains a new certificate. In docket 08-04-02, DPUC concluded that cable companies that have been granted a certificate under PA 07-253 are no longer subject to basic service tier rate regulation by DPUC, effective July 16, 2008, the date the docket was decided.

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