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McCain Wants Hearing on GAO Report

Senate Commerce Committee chairman John McCain (R-Ariz.) did not get the report from the General Accounting Office he was looking for.

But that doesn't mean he's done with the cable industry.

McCain spokeswoman Rebecca Hanks last week said the senator planned to hold a hearing on the GAO report soon, perhaps the week of Nov. 10.

"The senator would like to have a hearing before we adjourn," Hanks said, adding that a probable witness list had not been assembled.

Bill On Hold?

Congress has to complete work on annual spending bills and aid to Iraq, projects that could keep lawmakers in town until Thanksgiving and perhaps beyond.

Cable-industry sources interviewed by McCain's staff before the Oct. 24 release of the GAO report said McCain was preparing legislation related to sale of cable networks on an à la carte basis. But legislation is now on hold until after the hearing.

"I think the hearing will help in deciding whether there is legislation," Hanks said.

McCain has been one of cable's harshest critics, repeatedly accusing the industry of price gouging and demanding an explanation for rising nominal cable rates three times the inflation rate.

Last April, McCain turned to the GAO, which audits companies and industries for Congress with a record of nonpartisanship. McCain decision to rely on GAO stemmed in part from indications that the Federal Communications Commission was collecting and releasing faulty data.

The GAO didn't begin digging until last fall. But the 94-page document it produced reaffirmed many things cable operators have been saying — namely, rates are up due to rising programming costs, particularly sports networks, and to the burden of paying $75 billion in capital spending since 1996 to outfit cable plant with digital technology.

"I think it speaks the truth, what we've been trying to do," said Cox Communications Inc. CEO James Robbins, who has been embroiled with ESPN over the network's pricey license fee.

In the past, McCain has applauded à la carte services, claiming it gives consumers more choice.

GAO did not ignore one of McCain's key gripes — that the ever-expanding expanded-basic tier requires some consumers to pay higher prices for channels they do not value.

"Under the current approach, it is likely that many subscribers are receiving networks that they do not watch," the GAO said.

But on the à la carte issue — which means allowing customers to pick programming as if every channel were offered like Home Box Office or Showtime — the GAO produced a catalogue of concerns that would have to give pause to foes of bundling channels in large tiers.

The GAO concluded that after interviewing programmers and operators, à la carte would be disruptive, with the potential for substantial new costs to be imposed on consumers, who might end up paying more money for the same or a lower level of service.

"I think we told them the facts: À la carte, per se, doesn't work for anybody," said Insight Communications Co. CEO Michael Willner. "They recognize that there are specific cost pressures on the business and I think that came out in the report."

Many programmers derive 50% of revenue from advertising. À la carte would likely drive down ad revenue, forcing networks to recover the loss through higher license fees. The inability to raise licensee fees would mean fewer resources to invest in new programming, the GAO noted.

Programming diversity could suffer as well.

The report also noted that unlike à la carte, tiering helps nurture new networks and sustain niche players. The break-up of tiers could spell the demise of specialty networks.

GAO was also quite candid about equipment costs. An à la carte world would require consumers to lease addressable converter boxes. Today, about 60% of subscribers do not have even one box.

"The need for an addressable converter box deployment could be costly," GAO said, noting that the average monthly set-top fee is $4.39. "For homes that have multiple television sets, the expense for these boxes could add up — the extra cost for a home that needs to add three addressable converter boxes would be about $13.17 a month at current prices."

FCC Slapped

The GAO report was especially hard on the FCC. The report said the FCC's cable-rate survey produce inaccurate information and accused the agency of failing to maintain an accurate inventory of cable systems facing "effective competition," as that term is defined by federal law.

"In line with the industry at large, Charter supports GAO's recommendations regarding modifications to the FCC's annual price survey forms," Charter Communications Inc. spokesman Dave Andersen said in a statement. "To the extent that this survey fully captures costs which underlie cable prices, we believe it supports the fact that cable prices fairly reflect costs."

Mike Farrell contributed to this story.