Reinventing Regulation

By Crandall, Robert L. | Brookings Review, Winter 1994 | Go to article overview

Reinventing Regulation

Crandall, Robert L., Brookings Review

One can only hope that Vice President Albert Gore does a better job reinventing government than he did reinventing regulation. One of Gore's last big accomplishments as a senator was passing the 1992 Cable TV Consumer Protection and Competition Act, which reimposed rate regulation of cable television--just eight years after the industry was deregulated by Congress. Gore and his colleagues, tired of consumer complaints about the rapacity of the cable operators who had been freed from municipal regulation by the 1984 Cable Act, passed legislation that marked the first attempt to reverse course in the deregulation campaign that began in the mid-1970s.

Starting with the Ford presidency and continuing through every administration until that of George Bush, federal policymakers had sought to deregulate major industries--airlines, trucking, air cargo, railroads, natural gas production and pipelines, telephone equipment, banking, telephone communications, and cable television. The results had been generally favorable, with one big exception--the partial deregulation of the thrift industry that had invited unwarranted risk-taking and even fraud by banks and savings and loans.

By 1992 the deregulation of cable was threatening to go into the "failure" column too. The biggest problem was that after rates were deregulated in December 1986, monthly rates increased by nearly three times the general inflation rate. With cable operators being painted as insensitive, greedy monopolists, congressional action was inevitable and relatively quick in coming. A bill to regulate cable television was introduced in 1990, but Congress did not enact it until 1992.

The result is an extremely complex scheme of federal and municipal regulation. In the extreme, the 1992 law could even lead to cost-of-service regulation for each of the country's 11,000 systems. Given the industry's rapid pace of technical change, the widely differentiated product offered, and the difficulty of separating costs of different services, such regulation would surely be a nightmare. At the very least, the law requires that the Federal Communications Commission set regulatory "benchmarks" for basic cable rates--still no mean feat in this complicated industry.

But that is not the worst of the news. Within less than a year, cable reregulation has become almost as unpopular as deregulation. Rates may even have risen as the result of the new FCC regulations that implement the 1992 law. A recent FCC survey found that 31 percent of the subscribers to systems owned by 14 national cable companies actually saw their rates rise as the result of the new FCC rules. Because the systems owned by 11 other companies so revamped their pricing strategies in response to FCC regulation, the FCC staff has not yet been able to determine whether rates have risen or fallen for these companies.

While the vice president has remained surprisingly silent about the effect of his handiwork, his erstwhile colleagues in Congress are now beginning to pass the blame to the FCC. The problem, however, is with the rate reregulation, not with those entrusted with implementing it.

A Primer on Cable Television

Cable television was not always perceived as an evil monopoly. In its early years, cable provided a competitive threat to government-franchised monopolists--the television broadcasters. The FCC, with the prodding of Congress, had so restricted television licenses to the electromagnetic spectrum that enormous monopoly rents were earned by the lucky and influential few who obtained these grants of privilege.

In many parts of the country, households had access to only two or three television stations because of the FCC's explicit decision to limit competition in this new medium. A third or fourth might be over the next hill or mountain, but inaccessible as a result. Cable television was the invention of entrepreneurs who sensed that households might pay something to get these additional stations or to improve their reception on the two or three local ones.

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Reinventing Regulation


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