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GAO's Cable Probe Underway

Sen. John McCain (R-Ariz.) likes to say that every April, two things are inevitable in Washington: The cherry blossoms bloom and the Federal Communications Commission says cable rates are rising.

Last week, the cherry blossoms arrived on time — and the five FCC commissioners are reviewing the staff's latest survey of cable prices, which, when released shortly, is highly likely to show a rise in nominal cable rates and trigger a Niagara of negative news.

In years past, the FCC's study has proved a magnet for cable critics like McCain. But last year, McCain — a political maverick who is now chairman of the Senate Commerce Committee — decided to look beyond the numbers and probe deeper into cable pricing and channel-packaging issues.

Toward that end, McCain has asked the General Accounting Office, the investigative arm of Congress, to study the exact causes of rising cable rates and to verify the accuracy of cable-supplied pricing data to the FCC.

McCain made the request one year ago, but the GAO did not assemble its cable team until last fall. The office plans to deliver its report in October.

"We are doing a big job," said Laura Kopelson, GAO's senior public-affairs specialist.

Leading the GAO project are physical infrastructure team director Michael Gryszkowiec, director William Shear and assistant director Amy Abramowitz.

All have experience in studying cable issues. Last fall, the team produced a report that claimed provision of local-TV signals drove direct-broadcast satellite penetration, but had no influence on cable prices.

In an agreement with McCain's staff, the GAO plans a close look at how cable companies prepare justifications for rate increases to the FCC; factors that contribute to rate increases; the impact, if any, of competition from other pay-TV providers on cable rates; and how and why cable operators group networks into tiers.

The GAO's team is interviewing FCC officials and reviewing the agency's cable-rate orders and reports. It is also conducting a random sample of 100 cable franchises and interviewing MSO officials on how they calculated cost justifications for the FCC's cable-rate surveys.

The probe will also entail an examination of changes in revenues and expenses for all publicly traded cable companies, Kopelson said.

"What I know is that GAO, for about a month or six weeks, has been in the field visiting with a variety of MSOs, both in corporate headquarters and in various markets around the country," a cable-industry source said.


MSO executives have also been meeting with the GAO in Washington.

The source said MSOs are cooperating with the GAO.

"I have to say that I haven't heard directly about a lot of discomfiture about it, other than the fact that people are naturally uncomfortable about talking about proprietary information. My understanding is that people are being very cooperative about it," the source said.

The FCC's most recent cable-price survey was released last April and covered the 12 months ended July 1, 2001. It found that nominal rates rose 7.5 percent, while inflation was 2.7 percent.

Although cable critics jumped on the data as evidence of price gouging, they ignored other FCC data in the same report showing that per-channel cable rates, adjusted for inflation, declined.

Consumer advocates claimed per-channel prices are meaningless because so few cable channels are sold individually.

One MSO source said that the worst thing the GAO is going to find is that maybe some FCC results were in error, but not much else.

"What I think GAO is about is just very simply trying to demonstrate that the FCC's pricing data is in error. I don't think that's terribly hard-hitting," the source said.

Central to the GAO's report is an examination of cable's channel-tiering policies, partly in response to McCain's concern that cable subscribers are denied choice by having to purchase dozens of channels at a time on essentially a take-it-or-leave-it basis.

An MSO source last week said that discussions with GAO centered on a la carte issues. Usually, cable companies assert that tiering allows weak networks to co-exist with the strong, and a la carte options are few because programmers object to that business model.

Liked YES Deal

McCain is a fan of a la carte, particularly for sports programming. He has hailed the agreement between Cablevision Systems Corp. and Yankees Entertainment & Sports Network, which allowed Cablevision customers to access YES Network a la carte, in a mini sports tier or on optional expanded-basic tiers.

McCain also sent letters to the leaders of Comcast Corp., Time Warner Cable, Charter Communications Inc., Cox Communications Inc. and Adelphia Communications Corp. to appeal for wider consumer choices than just massive programming tiers.