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Policy

MSOs Were Once a la Carte Fans

7/20/2004 3:07 AM Eastern

“The only thing new in the world,” President Harry Truman once quipped, “is the history you don't know.”

A decade ago, several large cable operators leaped at the chance to offer subscribers channels a la carte. Why? Because it allowed them to evade federal rate controls and charge more for programming.

But cable does not like to recall that chapter in its recent history.

Last week, major cable operators, cable programmers and the National Cable & Telecommunications Association -- plus cable-paid consultants and law professors -- filed comments with the Federal Communications Commission ridiculing the idea that forced a la carte would be good for consumers or cable’s business interests.

Although the comments covered the waterfront, they essentially boiled down to this: If a la carte made sense, today’s competitive pay TV market would be supplying it.

In the early 1990s, when the direct-broadcast satellite industry was just starting out and the pay TV market was a cable monopoly, several cable companies toyed with a la carte, viewing it as a means of bypassing FCC rate controls.

The FCC’s rate scheme called for price regulation of basic and expanded basic. Premium and pay-per-view channels were exempt. However, the agency’s rules left a void: What if cable operators removed channels from expanded basic and offered them two ways: a la carte and in a so-called a la carte package? Would the a la carte package be rate-regulated?

Adelphia Communications Corp. exploited the ambiguity with gusto. The cable operator took all 32 channels in expanded basic and offered them a la carte and in an a la carte package that was priced at levels higher than FCC rules would otherwise allow.

Comcast Corp. and Time Warner Cable were less bold, unbundling just four channels.

After receiving complaints from subscribers and local governments, the FCC launched an investigation and determined in a May 1997 order that Adelphia’s move constituted evasion of its expanded-basic price caps.

Comcast and Time Warner were absolved because the commission said it was reasonable for the two MSOs to assume that removing just a handful of channels from expanded basic was not an evasion.

Adelphia’s a la carte experiment proved expensive: The FCC ordered the MSO to refund $2.45 million to 320,000 subscribers in eight states.

Adelphia went to court to protect its a la carte offerings, but a panel of the U.S. Court of Appeals for the D.C. Circuit affirmed the FCC’s decision that a large a la carte package was a tier of video programming subject to rate regulation.

September