Ferree Group to Probe Program Costs

A new team of economists formed by Federal Communications Commission Media Bureau chief Kenneth Ferree is planning to examine the factors that contribute to rising cable rates.

"That's the kind of thing we can do, an in-depth study on that question alone," Ferree told reporters in a briefing last Tuesday. "You can posit, are cable rates driven by programming cost increases?

"In fact, one of the papers will be directed at exactly that kind of question — what goes into cable rate increases?"

Two weeks ago, the FCC reported that nominal cable rates rose by 8.2% for the 12-month period ending June 30, 2002.

The same report showed that per-channel rates, adjusted for inflation, declined slightly.

Independent data

The cable study, Ferree said, would be part of a new agency emphasis on independent research. The FCC is often criticized for producing reports based on data supplied by the companies it regulates, and critics have questioned whether the company-supplied data have been accurate.

"We would ultimately like to do a lot more of our own factual development and rely less on industry information," Ferree said. "I am not impugning the character of the industry information."

Jerry Duvall, former chief economist in the Media Bureau, was named director of Media Economic Research, and will lead the cable-rate analysis. Tracy Waldon was named the new chief economist.

During a 45-minute session with reporters, Ferree fielded a wide range of questions on matters before his bureau.

'Novel issues'

Regarding the pending News Corp. merger with Hughes Electronics Corp., parent of No. 1 direct broadcast satellite provider DirecTV Inc., Ferree said it was too early to form any judgments — except that the deal raised new questions about vertical integration, or common ownership of programming and distribution assets.

"There are new and novel issues that need to be examined here. That's all I'd say. Again, we're a long way from drawing any conclusions about whether any of these things present problems or not," said Ferree, who has asked the companies to supply additional information. "We've got to know the facts before even we start to make those kinds of judgments."

When EchoStar Communications Corp., parent of No. 2 direct-broadcast satellite provider Dish Network, last year tried to merge with Hughes, FCC chairman Michael Powell and Ferree both issued ominous warnings that the merger would lead to excessive concentration.

But nothing like that has been said about News-Hughes by senior FCC officials.

"At this point, I wouldn't say there is a red flag about anything, other than that we just want to understand better the relationships between the companies, the ability of the independent directors at DirecTV to act in an independent fashion and the extent of the vertical interests of News Corp," Ferree said.

On CBS, Comcast, DTV

Five large cable companies and hundreds of small system operators oppose the merger. They argue in part that News Corp. chairman Rupert Murdoch will use his clout as a TV-station owner to drive rates up for News's cable networks, and force cable operators to carry new services that they would otherwise ignore.

On a digital-TV matter, Ferree said he did not believe that either CBS or Comcast Corp. was violating Powell's DTV transition plan in connection with their ongoing dispute over HDTV carriage. Comcast told the FCC recently that it was carrying just one CBS station because the network had demanded compensation for the high-definition feed, which, in Comcast's view, was inconsistent with Powell's plan.

"I don't think what CBS is doing is inconsistent with the Powell plan; however, nor do I think that Comcast's election not to have that as one of their five HD signals is inconsistent either," Ferree said.

Ferree said he did not think the Powell plan forbade broadcasters from seeking payment for their HDTV signals. The National Cable & Telecommunications Association has issued statements indicating disagreement with that point, noting that the Powell plan called for cable to carry up to five HDTV signals "at no cost."

Cable ownership

"That wasn't about a charge from the broadcasters. I believe it was no extra cost to the consumer," Ferree said. "My recollection is that we were not thinking about it in that sense — that the broadcaster would not be able to ask for compensation for carriage."

On cable ownership, Ferree said a bureau recommendation was delivered to Powell's office a few months ago, but had not advanced further.

In March 2001, a federal court remanded an FCC rule that barred one cable company from serving more than 30% of all U.S. pay TV subscribers. He declined to discuss the substance of the recommendation.

"I am reluctant to talk about our general approach, because it may be changed. I don't want to have another round of these kind of fake stories about what the commission is going to do in this," Ferree said.

Earlier reports said Ferree had recommended an ownership scheme involving a cap that rose or fell, depending on a cable company's degree of programming ownership.

Ferree's staff is also nearly done with rules governing cable-modem service in the wake of the agency's March 2002 decision to classify Internet-data delivery as an information service, and not as a cable service.

Ferree said he was not wedded to the idea that cable modem service and digital subscriber line (DSL) service provided by local phone companies should be regulated in the same fashion.

"The approach has to be consistent. Just my view, I wouldn't say that the two necessarily have to be regulated identically," he said.