Cable Television, Regulation of

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CABLE TELEVISION, REGULATION OF

Television has proven to be one of the most powerful media of all time. Newspapers, magazines, radio, and the Internet have made substantial contributions to the sharing of ideas and providing entertainment, but none was so immediately pervasive and hypnotic as "the tube," which is able to deliver breaking news and weather, movies, concerts, and sporting events directly into people's living rooms.

Beginnings of Cable Television

When television began to be widespread in the late 1940s and early 1950s, one only had to put up an antenna (after purchasing a television) to receive the free, over-the-air broadcasts. However, not everyone could receive a clear signal. Living in hilly regions, the mountains, or dense cities could all lead to poor signal reception, as could living too far away from a major city that had a television station. In response, people set up antennas in areas that had good signal reception and then sent that signal over cables into those areas where signal reception was poor. Thus began cable television. Cable has also been called community antenna, or community access, television (CATV).

The history of cable is intertwined with television and broadcasting, which provide the basis for understanding government regulation of the cable industry. By passing the Communications Act of 1934, the U.S. Congress created the Federal Communications Commission (FCC) to regulate the then-expanding world of radio broadcasting. The FCC was mandated to regulate all radio-wave communications "in the public interest, convenience, and necessity." Although no clear definition exists for what is or is not in the "public interest" (the debate has raged since then), the public interest doctrine is a pillar upon which all FCC regulations stand.

As discussed by Daniel J. Smith (1997), two other ideas are fundamental to the regulatory philosophy of the commission: scarcity and localism. Scarcity refers to the portion of the electromagnetic spectrum (the "airwaves") that is used by broadcasters to send signals. The airwaves are considered to be owned by the public, so regulating their use is in the public interest. Because only so many frequencies physically exist for use by radio and television stations, they are said to be scarce. The FCC plays "traffic cop" and chooses who is able to use them and sets technical standards. The second concept, localism, refers to the distribution of broadcast stations around the United States. Unlike most European nations, which chose to have fewer but more powerful (and therefore more far-reaching) regional broadcast stations, the FCC maintains that it is preferable to have more numerous but less powerful local broadcast stations. The commission claims that this will allow a given station to reflect better the flavor and opinions of those in the local community of a broadcaster. Together, the ideas of public interest, scarcity, and localism have guided how and why the commission has made certain regulatory decisions and refused others.

In general, the legal rationale for regulating cable has never been clear, because cable does not neatly fit any of the known regulatory models. Print communication, such as books and newspapers, had existed for centuries; by the time that television was developed, the rights of journalists and authors were fairly well defined, but cable was very different from a newspaper or magazine. Cable could be considered to be closer to a telephone system because both have networks of wires to send their signals. However, telephone systems such as Bell Telephone and AT&T, were "common carriers," which means that they had no control over what was sent out over their systems. Cable operators, on the other hand, chose what went out on their systems, so they were not common carriers. Cable had much in common with broadcasting, but cable did not use over-the-air spectrum space. Therefore, it was not a perfect match because scarcity was not an issue for cable. Since cable did not fit into the existing models, a new regulatory model was needed for cable.

During the last half of the twentieth century, the FCC, Congress, the courts, broadcasters, cable operators, and the public all participated in forging this new path for the popular and promising communication medium. As the following discussion will illustrate, regulation of the cable industry has been dominated by the need to protect traditional over-the-air broadcasters from the growing influence of cable and by the desire for local governments to maintain some control over what was essentially considered a public utility.

The History of Cable Regulation

According to Robert W. Crandall and Harold Furchtgott-Roth (1996, p. 1), the first cable system was "either in Mahoney City, Pennsylvania, in 1948, or Astoria, Oregon, in 1949. The first subscription cable system was established in Lans-ford, Pennsylvania, in 1950." When the 1948 FCC-imposed freeze on new broadcast television stations ended in 1952, the number of television stations rapidly increased, and cable had been established (see Table 1). At first, broadcasters liked the idea of cable, because it increased the reach of their signals and, most important, the size of their audience, which determined how much they could charge advertisers. By the mid-1950s, cable operators could use a new technology, microwave transmission, to beam signals from distant television stations to their subscribers. Anything that involved communications fell under the jurisdiction of the FCC, and in 1954, the commission authorized cable operators to build such microwave transmission facilities so long as the general public could also use them.

Local broadcasters feared that viewers would prefer these out-of-town stations to their local stations. However, the FCC had not established jurisdiction over cable. In Frontier Broadcasting Company v. Collier (1958), the first major FCC ruling

Cable Statistics for Selected Years Between 1952 and 2000
Year Number of Systems Total Subscribers
19527014,000
195430030,000
1956450300,000
1958525450,000
1960640650,000
1962800850,000
19641,2001,085,000
19661,5701,575,000
19682,0002,800,000
19702,4904,500,000
19722,8416,000,000
19743,1588,700,000
19763,68110,800,000
19783,87513,000,000
19804,22516,000,000
19824,82521,000,000
19846,20029,000,000
19867,50037,500,000
19888,50044,000,000
19909,57550,000,000
199211,03553,000,000
199411,21455,300,000
199611,11960,280,000
199810,84564,170,000
200010,40066,500,000
SOURCE : Warren Communication News (2000, p. I-96)

to involve cable, broadcasters argued that cable was a common carrier, which meant the FCC could regulate it. The FCC ruled that cable was not a common carrier, but the commission also ruled that cable was officially not like broadcasting. The following year, the commission said it could find no authority with which to regulate cable.

The Beginnings of Regulation

Although cable could not be defined, it was a different matter if the success of a local broadcaster was directly threatened by cable, especially if it was the only station in the area. When this happened in Carter Mountain Transmission Corporation v. FCC in 1962, the FCC denied a cable operator a permit to build a microwave station. This set a precedent for supporting local television stations in conflicts between local stations and cable operators.

The first substantial cable regulation began in 1965 and established a policy that would affect the industry into the twenty-first century. The FCC outlined rules for those cable operators who used microwave systems (which were almost all of them), since FCC jurisdiction over microwave was already established. Cable was ordered to carry the signals of local broadcast stations, termed "must-carry," and was restricted from importing the same program as a local broadcaster, termed " nonduplication." Therefore, local broadcasters were always represented on their community's cable system, and they did not face competition from distant stations. The FCC also mandated that distant signals could not be imported into the top one hundred television markets. (There are about two hundred such markets, ranked by population. The two largest markets are New York and Los Angeles.)

Arguing that cable was interstate communication by wire, the FCC extended these regulations to all cable systems in 1966. In the public interest, cable outlets were also expected to offer "local origination," or the capacity for the general public to produce television programs and air them on special access channels. In the first cable-related U.S. Supreme Court case (United States v. Southwestern Cable Company, 1968), a cable company questioned the authority of the FCC to limit the signals that company could carry. The Court affirmed FCC authority over cable, but not directly, calling such authority "reasonably ancillary" to the tasks of the FCC. In United States v. Midwest Video Corporation (1972), the Court upheld must-carry and local origination. These new regulations limited the growth of cable and, accordingly, investment in the new industry.

By 1970, concerns existed with regard to the cross-ownership of various media and the number of media outlets that were owned by any one person or company. The FCC had already established limits on radio and television station ownership and forbidden a telephone company from owning a broadcast outlet. The commission extended this ruling to cable and prohibited a telephone network or local television station from owning a cable outlet. In 1975, the FCC decided not to impose a cross-ownership ban on cable and newspapers because a problematic situation did not exist. However, there was no restriction on companies that owned several cable outlets—multiple-system operators (MSOs)—to prevent them from buying interest in cable channels on their systems; this is known as vertical integration.

Concerns were also raised about cable's use of copyrighted programming, which prompted the commission to detail their regulations in 1972. Must-carry was extended to all local and educational television stations within thirty-five miles of the cable operator. Depending on the market size, cable was expected to carry a minimum of three network stations (there were only three television networks then) and one independent station. The nonduplication rule was also extended to syndicated programs, termed "syndicated exclusivity." As a result, cable was regulated as it had never been regulated before.

Cable operators were especially frustrated about the new and complex rules for premium (e.g., movies) and pay (e.g., sporting events) programming. Such shows had the potential to bring in substantial profits beyond just subscriptions, and new satellite technology could deliver signals all over the country much easier than microwave networks. However, the regulations made it almost impossible, and certainly unprofitable, to offer such fare. This changed in 1977 with Home Box Office, Inc. v. FCC. The U.S. Court of Appeals for the District of Columbia struck down the programming restrictions and adopted a standard to apply to future FCC cable regulations. This paved the way for some of the most popular and profitable pay services in cable history, such as Home Box Office and Showtime. That same year, the commission eased a technical requirement, which made "superstations" such as WTBS and WGN available to more cable outlets.

By the end of the 1970s, cable had more programming to offer, but there were also many more regulations to follow. In the 1979 decision FCC v. Midwest Video Corporation, the U.S. Supreme Court said that the commission had gone too far with local origination, but by then the FCC had already eased the rules. Foreshadowing the deregulation of the next decade, a 1979 FCC study found that, contrary to popular opinion, cable did not have an adverse effect on the growth and incomes of local television broadcasters. Partially based on that study, the FCC decided to drop all syndicated exclusivity regulations in 1980, in the interest of delivering more programming to the public. However, another version of the rules was instituted in 1988.

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.

Cable Franchises

Unlike broadcast television stations, which transmit over the air, cable systems use networks of wires to deliver signals. This involves miles of cable and assorted technical gadgets, as well as facilities to coordinate transmissions. It takes the cooperation of the local government to install and maintain this equipment successfully.

In the franchising process, municipalities choose among bids from cable-system operators who wish to build in the area. Bids often include promises of maximum channel delivery and public-service projects in exchange for a negotiated fee to the government. Typically, only one cable operator is selected, essentially granting a natural monopoly. Through the late 1950s and early 1960s, state courts generally ruled that because cable systems used public right-of-ways to install cable, they were public utilities and could, therefore, be regulated. In 1978, the FCC was given authority to regulate telephone-pole attachments that were used by cable operators.

The FCC did not mandate formal franchise processes until the Communications Policy Act of 1984. Before then, local franchise authorities regulated rates and often dictated programming, including channel selection. With the 1984 act, basic cable rates were deregulated, and franchises were limited to specifying only broad categories of programming. Franchise authorities were also limited in how much they could charge cable systems, not to exceed 5 percent of gross revenues. This act also addressed franchise renewal, which became a concern as the importance of cable increased and thirty-year-old franchise agreements were ending. Basically, cable operators could not assume automatic renewal.

The U.S. Supreme Court became involved with the franchising process in Los Angeles v. Preferred Communications, Inc. (1986). Los Angeles refused to authorize another cable system on the grounds that it was too disruptive. Ultimately, franchising was supported, but in a competitive situation, a city could not limit the number of systems to one.

With the Cable Television Consumer Protection and Competition Act of 1992 and a return to regulation, local franchises regulated with the cooperation of the FCC. Cable operators were also mandated to provide written notice to initiate renewal proceedings. At that time, franchising authorities could consider the efforts of a cable operator to expand cable and community services. Rates were again deregulated under the Telecommunications Act of 1996. By the end of the twentieth century, concern had switched from the building of cable systems to overbuilds, where capacity exceeds demand.

See also:Broadcasting, Government Regulation of; Broadcasting, Self-Regulation of; Cable Television; Cable Television, History of;Cable Television, Programming of; Communications Act of 1934; Federal Communications Commission; First Amendment and the Media; Satellites, Communication; Telecommunications Act of 1996; Television Broadcasting.

Bibliography

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Timothy E. Bajkiewicz

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