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In an era of partisan nastiness and gridlock, the California legislature did something on Aug. 31 that was shockingly harmonious, reasonable and beneficial to consumers. Both parties voted overwhelmingly to allow competition into a sector–cable television–where prices have been elevated and service depressed by the most pernicious monopoly in America.
James K. Glassman
When Gov. Arnold Schwarzenegger signs the bill, as expected, companies that want a statewide video franchise can go straight to the Public Utility Commission and get approval to operate within 44 days. In the past, in California, as in other states, cable companies had to make separate deals with America’s 33,760 municipal units–a process that can take years. The local licensing agencies “would often drag their feet and demand unrelated favors such as building parking lots and planting trees,” writes Sonia Arrison of the Pacific Research Institute.
The effect was to create cable monopolies that often infuriated captive customers. According to a 2004 study by the Government Accountability Office, “cable subscribers in about 2% of all markets have the opportunity to choose between two or more wire-based operators.” As cable rates rose in the 1980s, the federal government tried to fix the market with more regulation. That attempt, of course, failed. For the five years ending January 2004, the Federal Communications Commission reports that average cable rates increased 7.8% annually, compared with a 2.1% increase in the Consumer Price Index.
Very quietly, things are changing. Seven states, comprising about one-third of the U.S. population, have now passed video franchise laws, which will not only lower monthly subscriber costs but also create new technology jobs–10,000 in California alone, according to one estimate–as Verizon and AT&T, along with cable overbuilders like RCN, jump in with both feet. To bring high-quality video to the home over a technology called Internet protocol, the telcos will make major investments to drive the fiber–which carries the data–much more deeply into their networks. Broadband service will improve; state and local governments will still get their franchise fees. All that will end is a monopoly that drives consumers nuts.
Bills bringing competition to cable have been outrageously popular. In Kansas and South Carolina, the vote in each state house was unanimous; in California, it was 33-4 in the Senate and 68-7 in the House. Supporters range from the National Association of Manufacturers to the Communications Workers of America.
With a national election coming up, you would expect Congress to get on the bandwagon and embrace a version of the state bills, killing the monopoly and taking the credit. Instead, federal legislation is slowed down by measures promoting “net neutrality”–the concept that telecom companies should be barred from asking content providers, like Amazon, to pay extra for higher-speed service the telcos develop–the way that an airline asks more for a first-class seat. The House, after rejecting a net-neutrality amendment, passed a video-choice bill, as it’s called, by a 3-1 margin in early June. But net neutrality lives in the Senate, and the debate has become tendentious. Moveon.org has taken up the cause, claiming on its website that a tiered system that gives faster delivery to some customers “would end the free and open Internet.” Such claims are nonsense, and irrelevant when a federal bill to liberate cable TV is otherwise at hand.
How much will consumers save? A 2004 study by the GAO looked at six markets with cable competition and found that rates were 15% to 41% below similar markets with no competition. Annual savings for U.S. households through competition will total $8 billion, says the Phoenix Center for Advanced Legal and Economic Public Policy.
In Texas, where a statewide franchising law went into effect last year, a study by the American Consumer Institute surveyed consumers and found that 22% switched cable providers and saved an average of $22.30 per month. Subscribers who stayed with incumbent providers saved $26.83 per month because of the downward pressure on prices. Verizon rolled out a service in Keller, Plano and Lewisville, charging $43.95 a month for 180 video and music channels. “Shortly thereafter,” writes the Heartland Institute’s Steven Titch, Charter, the erstwhile monopoly cable provider, “began offering a bundle of 240 channels and fast Internet service for $50 a month, compared to $68.99 Charter had been charging for the TV package alone.” Savings in Texas this year alone will total $599 million, according to the Phoenix Center. Yale Braunstein, an economist at the University of California at Berkeley, estimates that Californians will save between $692 million and $1 billion a year.
Yes, Americans can choose satellite TV, but, for reasons of convenience and service, many find it an inadequate substitute. There’s a reason that cable families far outnumber satellite families. “Overall customer satisfaction among satellite subscribers has declined,” says Steve Kirkeby, senior director of telecommunication research for J.D. Power and Associates. But if satellite TV improves and becomes a more attractive alternative, what’s wrong with having enhanced cable competition, too? The more the merrier is, apparently, an economic concept that some folks in Congress still don’t get.
James K. Glassman is a resident fellow and editor in chief of The American magazine at AEI.
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