roundtable: Larry Irving's Consumer Speech (fw
roundtable: Larry Irving's Consumer Speech (fw
Larry Irving's Consumer Speech (fw
Emily Littleton (emilyl@CapAccess.org)
Thu, 1 Jun 1995 14:04:43 -0400 (EDT)
Date: Thu, 1 Jun 1995 14:04:43 -0400 (EDT)
From: Emily Littleton <emilyl@CapAccess.org>
Subject: Larry Irving's Consumer Speech (fw
To: roundtable@cni.org
Message-Id: <Pine.3.07.9506011443.B2070-f100000@cap1.capaccess.org>
Roundtablers:
FYI, the NTIA wanted the TPR to see this. It's a speech Irving gave
on May 25, 95 addressing telecom related consumer issues. Comments?
- Emily
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
Emily M. Littleton Center for Media Education
emilyl@cap.gwu.edu v: 202-628-2620/f: 202-628-2554
---------- Forwarded message ----------
Date: Tue, 30 May 1995 16:43:44 -0400
From: DGARDNER@ntia.doc.gov
To: emilyl@CapAccess.org
Subject: Larry Irving's Consumer Speech
Send comments/questions to:
David Gardner
NTIA DGARDNER@NTIA.DOC.GOV
"A Consumers' Guide to Telecommunications Reform Legislation"
Remarks by Larry Irving
Assistant Secretary for Communications and Information
National Telecommunications and Information Administration
Department of Commerce
May 25, 1995
Washington, D.C.
[as prepared]
At the conclusion of the American revolution, the world watched
eagerly as we fashioned a document that would provide a framework
for us to govern our nation.
Today, as we enter what Vice President Gore calls the digital
revolution, the world is again watching to see how our nation designs a
framework to meet the challenges of the Information Age.
The Clinton Administration believes that we need a framework for
competition. We want to stimulate competition in the telecommunications
marketplace to improve everyday life for millions of Americans. The
Clinton Administration believes that competition will provide consumers
with lower prices, higher quality, and greater choice for
telecommunications goods and services. And it will provide businesses
with new opportunities.
We believe that competition is the best way to accelerate the
buildout of an advanced telecommunications infrastructure.
Telecommunications and information technologies and applications can
create new high-paying jobs; improve our nation's competitiveness;
enrich our children's educational experience; enhance medical services,
especially for Americans living in isolated or rural communities; connect
us to our government officials; and facilitate communications with our
family and friends.
We believe that the best way to achieve that vision is to reform
our 60-year-old Communications Act. The Administration supports
telecommunications reform legislation that will protect consumers from
monopolistic practices and promote real competition.
The difference between the approach to telecommunications
reform being taken by Congress and the Administration's approach is
clear: they want to deregulate companies, we want to ensure that
companies compete. Deregulation is not synonymous with competition.
We cannot move overnight from regulated monopolies to a truly
competitive market. This transition will take time.
We share common goals with the Members of Congress that are
crafting the legislation, including Senator Pressler, Congressman Fields,
Congressman Bliley, Senator Hollings, Congressman Markey,
Congressman Dingell, and other Members of the House and Senate who
have contributed to this legislative effort. Yet, in key areas we diverge.
The Administration wants both consumers and industry to reap
the benefits of competition.
Both the House and Senate have introduced telecom reform
legislation. We've been reading the fine print of the bills, and they fall
short of our goal.
Today, I want to present a consumers' guide to
telecommunications reform legislation. This consumers' guide will cover
five key issues: (1) cable rate regulation, (2) concentration of mass
media, (3) cable-telco buyouts, (4) telephone rates, and (5) universal
service. Then, I want to offer a "Consumers' Bill of Rights" that should
guide our policymaking in this area [with apologies to our Founding
Fathers.]
Cable Rates Will Rise
First, let us take a look a cable rate regulation.
Mark Twain once said, "Whenever you find that you are on the
side of the majority, it is time to reform." The authors of the House and
Senate bills appear to be taking this advice literally when it comes to
telecommunications policy, in particular cable regulation. The vast
majority of Americans are paying less for cable service than they did in
'91 and support the continued regulation of cable television rates.
The truth is that the 1992 Cable Act has brought substantial
savings to consumers. The FCC estimates that as a result of the '92 Act,
consumers have saved $2.8 billion through rate reductions, as of
December 1994. They have also saved because the rate of increase
has been brought down from three times the rate of inflation to a more
reasonable rate.
Indeed, on April 3, 1995, this organization, the Consumer
Federation of America (CFA), released a national survey showing that
cable consumers believe their rates are too high. And when asked
whether they support continued regulation of cable TV rates, two-thirds
of consumers said yes.
In addition, consumers are no longer overcharged for additional
outlets or remote controls. Before the '92 Act, cable companies charged
customers as much as $7 for an additional outlet; today most customers
pay nothing beyond the initial cost of the second wire for the ability to
get cable on a second or third television in their house. Remember back
in '91 when cable companies charged their customers up to $5 for a
remote control. Today, those customers pay less than a dollar for the
ability to channel surf.
And yet, the House and Senate committees, would deregulate
cable rates before consumers have a choice of providers, opening the
door for the abuses we saw in the late '80s and early '90s to return.
The Administration is not arguing that we should regulate cable
forever. We don't argue that rate controls could be less administratively
burdensome, especially for small operators. We do believe, however,
that it is critical that we not deregulate too soon, before competition
exists. Now is too soon.
We've been down this road before. In 1984, Congress received
assurances that competition to cable was at Americans' doorstep. The
then-president of the National Cable Television Association testified
before Congress that "Comsat and the other operators are going to be
providing [direct broadcasting] satellite service. It will have a
multiplicity of channels that again will be movies, sporting events,
news; same kind of things as on cable television. It will be offered
this year. It is not a pipedream. Comsat will be offering the service
this year. Rupert Murdoch just announced he will offer it this year.
That will be directly competitive with cable and it is totally
deregulated." The same cable spokesman went on to promise that "[t]here
will be two cable wires running down the street."
It was a pipedream in 1984 . Competition did not emerge then, or
shortly thereafter. What did emerge were tremendous price increases
for consumers as cable companies raised their rates with impunity. The
General Accounting Office found that, on average, the price of basic
cable services rose more than 40 percent from 1986-1989 -- three times
the rate of inflation during that time. And many individual communities
saw their cable rates skyrocket even more dramatically. For instance,
residents of Newark, New Jersey had rate increases of more than 130
percent. Cablevision of Connecticut raised its rates 222 percent.
Today, cable advocates are saying the same thing -- that satellite
and telephone competition is just around the corner.
This Administration is committed to the proposition that consumers
deserve protection through either regulation or competition. And I should
note that the '92 Act provides for immediate deregulation of cable rates
as soon as real competition is established in a community.
Unfortunately, just as in the '84 Act, both the House and Senate
bills will permit cable companies to increase rates before the vast
majority of cable operators face any actual competition. As George
Santayana said, "We learn from history that we do not learn from
history."
The House bill, for example, deregulates rates for almost 30
percent of cable subscribers immediately, and rates for cable
programming received by other subscribers fifteen months after the bill's
enactment, whether or not consumers have any choice of an affordable
alternative service.
The legislation would ensure that consumers could buy their
cable boxes in a retail store. We applaud this provision. But cable
operators will be permitted to increase rates for such equipment long
before the first consumer can actually buy a cable box in a store. This
is anti-consumer.
The Senate also deregulates cable, but in a different way. Under
the Senate bill, cable rates for popular programming such as CNN,
CSPAN, Discovery Channel, and ESPN would go up. Under the bill, rates
for cable programming services (commonly known as "expanded basic
services") will be regulated only when rates "substantially exceed the
national average rate for comparable cable programming services." In
most cases, rates would have to rise substantially before any regulation
occurred. Even worse, two cable companies, TCI and Time Warner
control about 40 percent of the market. When they raise their rates, it
will raises the national average. The end result -- cable rates skyrocket
for consumers.
The Administration understands that some regulatory flexibility for
the cable industry may be appropriate, particularly in pricing upper tier
services and for smaller operators. But, again, we would retain
essential protection for consumers until they can actually choose an
alternative video provider.
Let's put this all in perspective. Contrary to the cries of the
cable industry, current regulations are not crippling them. Electronic
Media reported that in 1993, "cable TV companies' operating income
margins at 20.1 percent outperformed the rest of the communications
industry."
In 1993, 14 new cable channels were launched; 1994, 25 new
channels were launched; and launch plans for 1995 include 63 new
channels.
This winter, a consortium that includes TCI, Comcast, and Cox
spent more than $2 billion to acquire spectrum for the delivery of
personal communications services (PCS) -- an amount that topped all
other bids. As CFA notes, since last summer, major cable companies
have invested over $15 billion in new competitive ventures.
In 1994, the FCC reported that the number of subscribers to the
top 100 MSOs grew by 5.4 percent -- almost 3 million customers in one
year. In contrast to the over 60 million cable subscribers, DBS has
fewer 1 million total customers, wireless cable has 600,000, and C band
has about 4 million. DBS is unaffordable for many Americans -- dishes
cost at least $700-$800 plus a monthly fee.
And, as CFA has noted, under current law, when any
combination of these competitors penetrates a market to the level of
serving 15 percent of the homes, cable regulation immediately
disappears under existing law.
Consumers should also be aware of what I call the "predatory
pricing provision." The House bill allows a company to drop its rates
for a small, select group of customers simply to drive out competitors.
For instance, a cable provider in New York City could drop its rates
for two apartment buildings in order to drive out of business a
competitor that is servicing those buildings.
Diversity and Localism in Mass Media Will Decrease
Consumers must also be made aware of the danger of
concentration in mass media. Under an amendment to the current House
bill expected to be offered today, the same individual or company can
own two television stations, an unlimited number of radio stations, the
local newspaper, and the cable system in an area. Now, it is fair to say
that if one person controls all of these media sources, that person will
have a strong influence on how that community thinks. As Congressman
Ed Markey has stated, "this provision will make Citizen Kane look like
an underachiever."
This should concern each of us. News and information is
essential to our system of democracy which relies on an informed
citizenry. As John Stuart Mill wrote in On Liberty, "only through
diversity of opinion is there . . . a chance of fair play to all
sides of the truth." Broadcasting and newspapers are still the major
sources of news, information, and entertainment in this country. Two
thirds of Americans get their news from television. Concentration of
mass media will bring a loss of diversity and localism. What is on
the front page of local newspapers will also be the lead story on
radio and television. An advertiser or a political candidate seeking
to reach an audience would face a bottleneck -- the local media
mogul -- with a strangle hold over a community. And perhaps worst of
all, fewer media outlets will be in the hands of people who live and
work in the communities they serve.
Cable-Telco Buyouts Will Reduce Competition
Let us now take a look at the cable-telco crossownership issue.
The Administration supports a repeal of the current cross-ownership
ban for telephone and cable companies. If we want to encourage
competition in today's market, we must eliminate outmoded rules that
prevent telephone companies from offering video services to
consumers, as well as restrictions on cable companies offering local
telephone services.
However, competition will be thwarted and consumers will be
harmed if we simply allow the two most likely competitors -- the cable
company and the telephone company -- to buy each other out in region.
We want to encourage two wires to the home, not one, as well as
additional wireless options. And we want to encourage more choices
for consumers, not less competition among companies in any local
market.
The Administration believes that an anti-buyout provision is crucial
for competition. Right now, cable companies are the dominant providers
of subscription-based video programming in communities across the
United States. The whole purpose of allowing telephone companies into
the video programming market is to provide a competitor to the cable
monopoly. The effect of two companies competing to provide video
programming services in a particular community will be lower costs,
greater choice, and higher quality for consumers.
If, however, telephone companies are allowed to enter the video
programming market by buying out the local cable company, the result is
the same as if the telephone company had never entered in the first
place -- one dominant provider of video programming services. The
American people do not want one monopoly to be replaced with another
-- they want and deserve competition.
In addition, cable companies are particularly well situated to
compete head on with telephone companies in the local exchange market
as they are the only other industry that has a wire into most peoples'
homes. Local cable companies' networks pass 96 percent of U.S.
homes. Mergers will eliminate local phone competition from cable.
Thus, we are opposed to the bills' buyout provisions. The Senate
bill allows telephone and cable companies to merge in every community
in the United States. Potential competitors will be swept away. For
example, NYNEX and Time Warner could merge in the New York City
area, USWest and TCI in Denver . . . who would possibly have a chance
of competing with those combination? In an era when we are trying to
move away from regulation towards competition, this is a major step
backwards.
The Administration commends the House. They have included a
ban on buyouts in areas greater than 35,000 people, and have limited the
buyouts to 10 percent of the telephone company's region. The
Administration is, however, concerned by a provision of the House
anti-buyout rule as currently drafted.
The Administration is troubled that the House bill assumes that
two-wire based competition is impossible in communities with fewer than
35,000 people. In fact, the opposite may be true. Competition might
be possible in many of these smaller towns. NYNEX is building an
advanced video network in southeastern Massachusetts and Rhode
Island. This network would provide service to Marblehead (population
20,000) and Winthrop (population 21,000) among other towns. The fact
that NYNEX is planning to provide service to these two towns shows
that competition is not only possible but may soon be a reality -- if
we permit it.
The Administration has consistently recommended that Congress
adopt a strong in-region anti-buyout restriction on acquisitions and
joint ventures between telephone companies and cable systems, with a
limited exception for rural areas of, for example, 10,000 inhabitants
or less, because such areas truly may not be able to support two-wire
based competitors (out of region is ok). In addition, the FCC should
be granted authority to review the ban after a certain number of years.
Broad exceptions to the anti-buyout rule, however, invite consolidation
of power by multimedia monopolies and discourage critical competition
in the video services and local telephone markets.
Rural areas will receive a double whammy, as cable rates for
small systems are deregulated immediately and buyout provisions reduce
the likelihood of competition. To paraphrase Glen Campbell, "Thank God
I'm a City Boy."
Telephone Rates Could Rise
Fourth, consumers must understand that the current bills could
result in higher telephone bills if the Bell Operating Companies are
allowed to use their monopoly power to weaken competition.
The bills under consideration in the House and Senate Commerce
Committees lift restrictions on Bell Operating Company entry into long
distance and other markets without first allowing the Department of
Justice to determine whether real competition is developing in local
telephone markets. The checklist included in the bills covers many of
the steps for interconnection and unbundling that most analysts believe
are necessary for opening local markets to competition. Unfortunately,
however, we do not know whether these steps alone will be sufficient
to allow local competition to evolve. A simple checklist may not ensure
that competition will occur . . . and it most certainly cannot replace
the need for the expert analysis of the market that the DOJ would bring
to the process.
William Baxter, the former Assistant Attorney General -- and my
former law professor -- who presided over the break-up of the Bell
System, strongly supports a role for DOJ to ensure that local telephone
companies who hold a monopoly over essential local facilities do not
use their entry into the long distance market to diminish competition
and hurt consumers. As Mr. Baxter states in a letter to Congress: "We
should not fall into the trap of thinking that just because local
competition is imaginable, it is already here. It is not here. It is
not even close." The Clinton Administration agrees.
The bills in both Houses weaken the ability of state PUCs to
protect consumers by preempting state regulation of rate of return
regulation. The bills assume that we in Washington can best determine
how telephone rates should be regulated in the various states.
Universal Service Is Under Siege
Fifth, consumers need to be alerted to the fact that universal
service is under siege. President Clinton, Vice President Gore, and
Secretary Brown are all committed to ensuring that all Americans have
affordable access to telecommunications and information services.
The House bill may include a provision to weaken universal
service by essentially freezing the definition of universal service at
basic telephone service. If we are to move our country forward, into
the 21st Century, into the Information Age, then we cannot afford to
freeze the technology that we make accessible and affordable at
yesterday's level. We need to make sure that everyone has access to
advanced telecommunications services. We will stunt our growth as
individuals and as a nation with a static definition of universal
service. Imagine if thirty years ago we had frozen the definition of
universal service nationally -- we would be limited to party-line
service outside our major cities!
The Administration supports language in the Senate bill that
promotes affordable access for schools, libraries, and hospitals. Yet,
this language is being attacked as well. The Administration supports
the Snowe-Rockefeller Amendment that would advance this issue. The
President and Vice President have repeatedly emphasized the need to
ensure that every child in this nation be able to hook up to the
information superhighway, in order to learn and prepare for the 21st
Century.
A Consumer's Nightmare
If a telecommunications reform bill passes without changes to
these provisions, it will be a consumer's nightmare. Consumers will
dig deep into their pockets to pay cable bills that will likely rise
faster than the rockets carrying direct broadcast satellites and
telephone bills that will increase faster than George Foreman's weight
after a Memorial Day picnic . . . .
Many consumers will have only one provider to turn to for their
telephone and cable services. Deregulated monopolies will be in the
position to keep start-ups and entrepreneurs out of the business. For
equipment, consumers will have the choice of the deregulated monopoly
provider or . . . the deregulated monopoly provider. There will be no
choice.
Higher rates, no choice, no pressure for high quality or
innovation. Isn't the whole idea of reform to improve our lives?
A Consumers' Bill of Rights
What consumers need is a bill of rights that is reflected in the
telecom reform legislation. Let me suggest some possibilities:
o The right to reasonable cable and telephone rates.
o The right to a choice of providers of cable and telephone
services.
o The right to buy converter boxes, telephones, remote
controls, and other telecom equipment at competitive prices.
o The right to diversity and localism in ownership of
community media.
o The right to privacy.
o The right to be protected from fraud over telephone,
cellular, and computer networks.
o The right to fair compensation for use of spectrum.
o The right to affordable access to basic telecom and
information services.
These rights will not just appear. You need to fight for them on
behalf of consumers. You need to educate consumers as to their
importance. Consumers need to voice their concerns. And you also
need to look beyond the current telecom environment to the information
superhighway of the future and the emerging consumer issues that are
arising. For example, a 1993 Harris Poll found that 83 percent of
Americans are concerned about threats to personal privacy. How will
consumers' privacy rights be protected in an era of increased electronic
dissemination of information? NTIA released its Notice of Inquiry on
privacy in February 1994 and plans to issue a Privacy White Paper next
month. We hope that you work with us to develop solutions to this issue.
>From Sound Bites to Sound Policy
Let us our recognize that what makes for good sound bites, does
not make for good policy. Eliminating NTIA and the Department of
Commerce may sound good in a press release, but what does it mean?
It means that as we enter the 21st Century -- the Information Age
-- and encounter critical issues such as privacy rights and copyright
protections in cyberspace or universal service or electronic commerce,
the President will not have the benefit of a telecommunications policy
shop to advise him on how to resolve these issues. Without protections
or rules of the road, no one will want to travel the information
superhighway. Moreover, without the NII grants program, the public
broadcasting grants, and the children's television grants dispersed by
NTIA, new technologies will not reach traditionally underserved
communities. Each of us will suffer, and our country as a whole will
suffer, for the opportunities lost.
The Clinton Administration is fighting to avoid this result. We
will all pay a costly price if we lose.
Let me take a moment to emphasis that industry has valid
concerns. The telephone and cable companies are unnecessarily
shackled from entering into each others' businesses. Broadcasters
have valid concerns about being able to compete in an increasingly
multichanneled and digital environment. The Regional Bell Operating
Companies should be permitted into long distance, manufacturing, and
other areas once they face competition in their local markets. The
Administration has long advocated reform to the 60-year-old
Communications Act to enable our telecommunications and information
industries to retain their leadership in the global economy.
And we are going to continue to fight on behalf of the consumer.
We recognize the problems for consumers in the current telecom reform
legislation. But as American industrialist Henry Kaiser said, "Problems
are only opportunities in work clothes."
Conclusion
We're not the only country working to meet the challenges of the
digital revolution. Around the world, other countries are facing similar
issues and are looking to us for leadership. The G-7 Ministerial
Conference on the Information Society held in Brussels in February
underscored the importance of what we are doing in our country for the
rest of the world as well. And my participation in the Latin American
Telecommunications Summit in March reinforced this point.
The rest of the world is watching us. Countries that are in the
midst of reform right now -- such as Germany -- are calling us daily for
weekly reports on our legislative efforts. We need to get telecom reform
right. The bottom line is that we need competition. Please join us in
working towards reform that will benefit everyone.
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