LOCALITIES ACCUSE CABLE ON ‘PREDATORY PRICING’ STRATEGY
Main goal of recent surge in cable operator filings for rate relief is freedom to cut rates to discourage competitors, rather than freedom to raise fees, critics said. Surge has local regulators worried about protecting consumers not only from rate increases but also from operators’ “predatory pricing” strategy to discourage competitors. FCC filings for rate relief doubled in last year, which MSOs acknowledged was shift in strategy to compete more aggressively with DBS at local level (CD Jan 28 p1). “What’s driving these filings is the strategy to get out of the uniform rate provisions of the Cable Act,” said attorney James Baller, who represents cities. In at least 2 cases, cable operators had used rate relief orders to resort to predatory pricing to undermine competitors, he charged. When FCC makes determination on effective competition, it should look at pricing issues as well, Baller said. Some local regulators interviewed called on FCC to conduct full review of effectiveness of rate regulation in current form.
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Baller said uniform pricing provisions of Act required that cable operator provide uniform rates throughout franchise area. That barred operators from offering special deals in only some areas of franchise, he said. However, under 1996 Act, operator could be freed from pricing protection if it were deemed to face effective competition, he said. One instance of cable’s seeking rate relief to indulge in what Baller called “predatory” pricing was Charter’s offering special rate in Scottsboro, Ala., to forestall competition from cable service of Scottsboro Electric Power Board.
In FCC filing, city charged Charter with offering special rate of $19.95 per month for its expanded services in Scottsboro, where MSO normally charged $24.95. After offering special rate for one year, Charter allowed some customers to continue at that rate for 2nd year, it said. Pricing strategy was designed to “terminate” its efforts to compete in market, city said, and to “signal other would-be competitors that attempts to enter other Charter markets would lead to similar predatory practices.” In its response, Charter admitted it had conducted “win-back” campaigns but said such campaigns were widespread among cable operators. Denying it had resorted to predatory pricing, MSO said its policies had benefited subscribers who paid lower monthly charges for improved services. Baller said similar complaint had been filed with FCC against Time Warner by City of Austin and overbuilder Grande Communications.
Referring to Scottsboro filing and similar complaint by overbuilder Knology about predatory pricing by Charter in W. Point, Ga.. and Montgomery, Ala., FCC said in its status of competition report released in Jan. that it was concerned about “signal such targeting may send” to would-be competitors in market, “particularly to the financial markets to which a new entrant may well be dependent for resources.” However, agency said, it wasn’t clear it had specific authority “to address these kind of problems directly.” Commission said there had been suggestions its authority to prohibit anticompetitive behavior or unfair practices under Sec. 628 of Act could be applied to predatory pricing policies. Alternatively, agency said, it may have to seek additional authority from Congress to combat such practices, “which limit competition and discourage new entry.”
“We think the FCC currently has the authority to address the issue,” Baller said. If agency believed otherwise, it should seek express authorization from Congress to stop predatory pricing by cable operators, he said, or change definition of effective competition. Countering MSOs’ argument that subscribers would benefit from lower prices, he said customers wouldn’t benefit by cable operators’ selectively “dumping” rates whose effect was to drive out competitors or dissuade potential entrants. “Customers will stand to benefit only if the pricing practices are permanent and uniform,” Baller said. Charter’s pricing in Scottsboro was example of how MSO charged higher rates where it faced no competition but drastically cut rates to eliminate competition, he said. MSOs are using their national sales and pricing in noncompetitive markets to cross-subsidize rates to drive out smaller competitors, he charged.
Despite current trend toward rate relief, it would be politically difficult to do away with rate regulation given increasing customer frustration over rate raises, attorney Nick Miller said. “I don’t see Congress relaxing rate regulation,” he said: “If anything, they might tighten it.” Whether FCC will read “political winds” and act or remains “dormant” is hard to predict, Miller said. There’s need for mechanism at local level to determine availability of reasonable rates for basic service, said Ron Mallard, dir. of Fairfax County (Va.) Dept. of Telecom & Consumer Services. But if FCC established “clear and effective” method of determining effective competition in way that gave consumers real choice, rate protection would have limited use, he said. Pointing out that 95% of cable subscribers took upper-tier service rather than basic, Mallard, former pres. of National Assn. of Telecom Officers & Advisers (NATOA), said in that context, rate regulation was “somewhat dubious. We need a full review by the FCC of the effectiveness of rate regulation in its current form and [FCC] should either strengthen it or disband it altogether.”