FCC Study Boosts a la Carte Pricing

The Federal Communications Commission released a study Thursday stating that the a la carte sale of cable programming -- an approach fiercely opposed by the industry -- could provide “substantial benefits” to consumers.

FCC chairman Kevin Martin, an a la carte proponent, telegraphed the report’s major findings in Senate testimony last November, claiming that a similar FCC report in November 2004 prepared by staff working for then-chairman Michael Powell was flawed because it relied on a cable-funded study that had analytical and mathematical errors.

The cable industry has claimed that the per-channel sale of networks -- as opposed to the sale of dozens of channels in packages, the current business model -- would drive niche networks from the market, reduce choice and force channels that survive to charge much higher retail fees to replace lost ad revenue, meaning that consumers would likely pay much more to maintain access to their favorite channels.

The National Cable & Telecommunications Association funded a study by Booz Allen Hamilton Inc. to document the economic havoc that forced a la carte would unleash -- a report the FCC’s first a la carte study largely embraced. But the record on a la carte presented to the commission was massive and included other economic studies, not just BAH's findings.

At Martin’s direction, FCC staff picked apart the cable-funded BAH report and determined that BAH committed analytical and mathematical errors that masked findings that a la carte could benefit consumers.

In one case, the agency said, BAH failed to “net out the cost of broadcast stations when calculating the average cost per cable channel under a la carte.” This omission overstated prices by 50%, the FCC added.

In another example, the commission said the BAH report underestimated the number of channels a consumer could purchase a la carte without seeing an increase in his or her monthly bill. The FCC said the correct channel count was 20, three more than the 17 channels a typical household views. Under certain scenarios, the FCC found that buying 20 channels a la carte could lower monthly bills 3%-13%.

The FCC explained these flaws in a summary of the 61-page report.

BAH responded in a prepared statement, “In November 2004, the FCC independently corroborated the methodology and conclusions of a report prepared for the FCC's a la carte inquiry. At that time, other independent economists also corroborated our conclusions. In December 2005, in a letter to the FCC's chief economist, we acknowledged -- and corrected -- a mistake in one of our calculations. We shared with the FCC our findings that, after making the appropriate adjustments, our conclusions remain unchanged.”

The company added, “We continue to stand by our conclusions and underlying assumptions based on our experience and on the information we collected at the time our report was written, in July 2004.”

"If a la carte is not more expensive for consumers, I will support an effort to take such an approach, subject to discussions with providers on the downside of such a process," Senate CommerceCommittee Chairman Ted Stevens (R-Alaska) said in a prepared statement.

“The report confirms what I have believed for years: If consumers are allowed to choose the channels their families view, then their monthly cable bill will be less,” Sen. John McCain (R-Ariz.) said in a prepared statement.

“I will soon be introducing legislation that would entice all providers of television services to offer an a la carte option, in addition to a package of channels, in return for regulatory relief,” he added. “I hope the cable industry will appreciate the ability to choose despite their failure to provide meaningful choices to their customers.”

The NCTA declined to comment until it had time to study the report.

The Parents Television Council lauded the report, saying in a prepared statement by president L. Brent Bozell, “We applaud the FCC and chairman Martin for bringing the truth to an issue where only lies and deceit had gone before. Cable choice will help, not hurt, consumers. Consumers -- and especially families -- must be afforded the ability to pick and choose and pay for only those networks they want in their homes.”

He added, “We hope today’s announcement will spur the cable industry to do the responsible thing and offer unbundled network programming for those consumers who want it. And if they refuse to shed their anti-competitive practices, then Congress should force them to do so.”

“Today’s FCC report on a la carte programming once and for all marries the facts with consumers’ wallets,” AT&T Inc. senior vice president, federal regulatory Robert Quinn said in a prepared statement.

“We will be happy to offer a la carte programming as long as we are able to obtain access to the programming in that manner,” Quinn added. “As we enter the video market, it is our goal to deliver more choices to our customers when they want it, in the way they want it.”