Let's regulate cable now! Oops. Didn't we already do that?

• Author: Hazlett, Thomas W.

Oops. Didn't we already do that?

The outrage is palpable. Cable TV rates are increasing at four times the rate of inflation, and subscribers are mad as hell. Local monopolies are gouging consumers, who need protection from evil video conglomerates. Let's get Congress to regulate rates now!

That's what groups with consumer in their names are telling reporters and politicians, and the pleas of the Consumers Union and the Consumer Federation of America are not going unheeded. Articles have been written, hearings have been called, action will be taken. There's just one glitch: Cable rates are already regulated.

Six years ago, the Cable Television Consumer Protection and Competition Act of 1992 directed the Federal Communications Commission to clamp an extensive set of price controls onto some 11,000 U.S. cable systems. The FCC quickly created a new Cable Services Bureau, hired 240 additional staff members, and promulgated a series of rate rollbacks between April 1993 and July 1994. By the time the dust had settled, the FCC claimed that subscriber charges had been reduced by 17 percent - about $3 billion annually.

Nice going, Washington. That ought to prove that government really can work for the people. Indeed, the Clinton administration - which appointed a new, Gore-affiliated FCC chairman to spearhead the cable regulation effort - claimed the rate controls as a prime-time example of "reinvented government."

And then, reality. Who could have predicted it? When the feds clamped new limits on rates, cable system operators responded. They chopped back plans to expand capacities; they froze spending for new channels; they rejiggered tiers and squeezed additional revenue out of unregulated services. (Premium channels, such as HBO and Showtime, weren't subject to rate controls.) Most embarrassing to the FCC was the explosion in home shopping networks, which, unlike other channels, actually pay cable systems to be carried.

In the end, even with lower rates, customers found themselves getting a worse bargain - evidenced by the fact that basic cable subscriber and viewer growth rates plunged in the wake of FCC rate rollbacks. Subscribers were voting with their feet, rejecting the rate regulation scheme. By November 1994, under intense pressure from the owners of new cable networks (who had borne the brunt of the industry retrenchment under controls), the FCC relented. It allowed cable operators to raise rates at twice or three times the rate of...