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Rising cable costs favor package deals

By DAVID REYNOLDS, UPI Correspondent

WASHINGTON, March 25 (UPI) -- As the cost of cable rises, consumers have little choice over the specific channels they chose to buy, according to a report released today by the Government Accounting Office.

The Senate Committee on Commerce, Science and Transportation held hearings Thursday morning, to assess why cable companies sell channels in bundles of several dozen, but not "a la carte."

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Right now, cable TV consumers "have all the choice of a Soviet election ballot. It's take it or leave it," said Committee Chairman, Sen. John McCain, R-Az.

The GAO report, "Subscriber Rates and Competition in the Cable Television Industry," weighs the effects of giving consumers the option to purchase channels individually. Consumer advocates and industry experts who testified before the committee disagreed that providing channels a la carte would benefit consumers.

By allowing consumers to choose specifically which channels they want, McCain said consumers could avoid rising costs by purchasing only the channels they watch.

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Gene Kimmelman of the Consumers Union said, "75 percent of all viewing is of 20 channels."

Marilyn Praisner of the National Association of Counties, said, "Problems are caused by a lack of effective competition."

The GAO report indicates that there is not enough competition in some areas. Cable prices are 15 percent lower in markets where there is more than one distributor competing for viewers, but only 2 percent of all markets have more than one primary distributor, the report says.

The cable television industry was deregulated in 1996 when Congress found cable companies did not have a monopoly on the market, according to Sen. John B. Breaux, D-La. Since cable was deregulated the cost of cable has increased. In the last 3 years, cable prices rose by at least 34 percent, according to the GAO report.

But the rise in prices is also due to increasing costs of programming and technology improvements made by the cable industry, said Mark L. Goldstein of the General Accounting Office. Cable companies spent more than $75 billion on improved services since being deregulated, the report said. New technologies providing customers with high-speed Internet access is one of these improvements.

Congressional regulation of industry is only used if when Congress decides companies have a monopoly. Federal regulation of business other than to prevent monopoly pricing is unusual, Sen. Breaux said. "It is far too presumptuous for Congress to tell industry how to market their product," he added.

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Representatives from cable distributing companies and cable channels testified as to why their prices were rising. In a written statement to the committee, James Robbins of Cox Communications, Inc., said, "more than half of our rate increases were directly attributable to programming cost increases."

Sports cable network ESPN's president George Bodenheimer said a la carte service would be "a consumer disaster and would not address the price of cable." Later he added, "90 million Americans agree the basic package is a great value," suggesting a la carte pricing is unnecessary.

The cable channels with the highest programming costs are sports channels like ESPN. Expensive contracts with professional sports leagues make sports programming the most costly for cable companies. The high prices ESPN pays to sports leagues are being passed onto consumers who may not be interested in sports, according to Senator Ron Wyden, D-Or.

He said selling cable channels exclusively in bundles makes it difficult for consumers to know how much they are paying per channel. If consumers knew how much ESPN costs, some consumers might not choose to purchase it, Wyden added.

"You've locked people out of the markets," Wyden told industry representatives.

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A la carte sales would also please consumers who don't want stations containing some adult material included in the same packages as children's programming like Nickelodeon, McCain said. He congratulated the cable company for allowing viewers to black out unwanted channels but questioned why viewers were still required to pay for channels they don't use.

Consumer advocates said the industry is reluctant to change their sales practices because joint ownership of cable companies has reduced competition.

"It is a handful of companies who all make their money on programming," Kimmelman said. "They control prices. They control what we see."

The GAO report did not find that ownership connections between networks and cable distributors increased prices in those markets. But the report said it is easier for a cable company to gain access to markets owned by an affiliate.

The GAO did not suggest a switch to an a la carte system. An a la carte system would still allow cable companies to offer consumers packages of channels. But, in addition to basic packages, consumers could choose other stations individually, so they don't pay for channels they do not want to watch, McCain said.

Rodger Johnson, chairman of the Broadband Service Providers Association, said that "a la carte is long term where the industry is going to go." He said they could not yet provide the service because "there is a 30-40 billion dollar bridge to get there."

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Switching to an a la carte system would mean additional costs, which Cox said would increase the price for consumers.

Senator Trent Lott, R-Miss., said he was not ready to support government intervention in the cable industry but expressed concern over rising prices.

"When the rates go to high, we regulate you because there is a point where people will rebel. I think we're knocking on that door," Lott said.

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