Cable by Channel Could Be Cheaper

Findings Counter FCC's First Report

The Federal Communications Commission yesterday released a report suggesting that cable TV bills could fall if channels were sold individually rather than in packages, contradicting an assessment the agency produced 15 months ago.

FCC Chairman Kevin J. Martin, who commissioned the revised report, hinted at its conclusions in November when he called the earlier assessment flawed and suggested consumers may benefit from an "a la carte" offering. Cable companies have long opposed an a la carte system, arguing that it would raise prices and reduce the diversity of programming available to consumers.

The revised report found that average consumers buying 11 cable channels a la carte could see their bills fall by as much as 13 percent or rise by as much as 4 percent, depending on a variety of assumptions regarding the effects a la carte pricing would have on the cable business.

The original November 2004 report, released when Michael K. Powell chaired the FCC, had found the average consumer's bill would rise by 14 percent to 30 percent.

The new report is likely to raise pressure on cable companies to shift to an a la carte model, but regulatory analysts said there is little chance they will do so voluntarily or that Congress will force them to by passing legislation.

Both reports relied in part on a 2004 study conducted by the Booz Allen Hamilton Inc. consulting firm and paid for by the National Cable and Telecommunications Association cable lobbying group.

The FCC said yesterday that the Booz Allen Hamilton report did not properly account for broadcast channels in one calculation, effectively inflating what moving to an a la carte system might cost consumers.

The agency also faulted the report for assuming that people would watch less television if they were able to buy only the channels they wanted. A reduction in television viewership would reduce advertising revenue and could force cable companies to charge consumers more.

Booz Allen Hamilton acknowledged the error in its calculation but said it stood by the report's basic conclusions, that an a la carte system would raise prices for comparable service and would reduce the diversity of programming.

Proponents of a la carte pricing, who include consumer advocates and groups seeking to crack down on TV indecency, seized on the new FCC report to argue that cable companies should offer channels one by one rather than in the multi-channel packages customers now must purchase.

"This breathes new life into the idea of letting consumers take charge of what they get on television and what they have to pay for it," said Gene Kimmelman, senior director of public policy with Consumers Union.

But NCTA President Kyle McSlarrow said in a written statement that "the marketplace in which cable, satellite, broadcasters and others vigorously compete for customers should decide video offerings, not mandates and price controls imposed by Washington."

Analysts said the FCC report would have little immediate impact beyond sending a message to cable companies.

"It is unlikely that Congress is going to act in a way that would materially change the business model for how these services are delivered. I don't believe this Congress is likely to intervene in the marketplace in that manner," said Blair Levin, who analyzes telecom regulatory and legislative matters for Stifel Nicolaus & Co.

The FCC released the report as the major telephone companies, including AT&T Inc. and Verizon Communications Inc., are seeking to enter the video market, which would present fresh competition to cable and satellite companies. AT&T has said it would offer channels a la carte if it could buy them from programmers in the same fashion.