The Greatest Story Never Told: How the 1996 Telecommunications Act Helped to Transform Cable's Future

It'll be 10-to-1 in our favor. I would say that by 2000, we'll have 50 percent of the cable TV business--no doubt about it, which is why some cable companies are in a panic. Meanwhile, the cable companies won't have even 3 percent of telephony revenues in their best market. Not in their best market. It's just not going to happen. (1) Those were the words of the chief operating officer of Bell Atlantic, Ray Smith, as reported in Wired Magazine, February 1995. And those words prove yet again the wisdom of the famous Yogi Berra quote: "The hardest thing to predict is the future." Of course, predicting the future is exactly the task that the United States Congress took on when it fashioned, and ultimately passed with overwhelming bipartisan support, the Telecommunications Act of 1996 ("1996 Act"). Congress thought that the new Act would pave the way for facilities-based competition in local telephone service, and that by breaking down the legal barriers to entry by phone companies into the cable television marketplace, it would also stimulate more facilities-based competition in multichannel video services. In retrospect, the provisions of the 1996 Act that have made the most difference in the communications marketplace were not those that were the most debated and discussed, but rather a single change that barely rates a footnote in most analyses of the 1996 Act: the decision by Congress to deregulate most rates charged by cable television providers effective in 1999. Why did this small provision turn out to be so important, and what has it made possible? To give the most complete answer, let me provide some background on the state of the cable industry as the 1996 Act gained steam in Washington. America did not have a national policy on cable franchising until Congress passed the 1984 Cable Act ("1984 Act"), which for the first time regularized franchising procedures, placed reasonable limits on the regulatory authority of local government, and curbed most of the abuses that had afflicted the wild and woolly franchising process until then. The 1984 Act inaugurated boom times for cable. (2) From 1980-89, cable's customer base soared from nearly 16 million to nearly 53 million. Cable construction boomed. New cable channels proliferated. After decades of struggling to establish ourselves, which included overcoming opposition from broadcasters, Hollywood studios, and telephone companies, and fighting our way through franchising, cable was finally entering a Golden Age. But this rapid growth was accompanied by some problems. Consumers experienced frequent service difficulties as systems were being rebuilt. Many companies did not take customer service as seriously as they should have--in a nation that loves television, nothing could be more annoying than losing service for long periods of time or waiting literally days for a service technician to arrive. And while consumers enjoyed all of the new programming, they just did not like what they perceived as their lack of choice among providers (this was back before direct broadcast satellite ("DBS") services became a serious competitor). Regrettably, by 1992, Congress felt it necessary to step back in to reimpose some regulations on cable. At the same time, it took steps to encourage more competition from DBS companies, including the requirement that all programming in which cable operators had a financial interest be made available to DBS providers. While the cable industry warned that reregulation could have a devastating affect on cable's growth, congressional attitudes had hardened, and the 1992 Cable Act ("1992 Act") was passed over President George H. W. Bush's veto--the only veto override he suffered during his term. (3) Over the next several months, the Federal Communications Commission ("FCC") exercised its new authority over basic cable pricing by requiring seventeen percent across-the-board reductions, (4) which undercut investor confidence and choked off investment. …