Ante Up If You’re Cabled Up

What’s happened to your Cable TV bill recently? Mine’s risen by almost half in the past couple years--from $15 to $22 a month for basic, no-frills service. A year of cable now costs more than a nice color television.

As of December, 1986, Congress and the Federal Communications Commission “deregulated” the cable industry. That is, they forbade local governments from restricting cable rates and made it virtually impossible to take away a cable franchise.

Deregulation in general--of airlines, for example--has been a great success of free-market economics. But cable deregulation suffers from a laughable flaw: Cable systems aren’t a free market. They’re a government-granted monopoly.

Congress and the FCC are now reconsidering their folly. Unfortunately, cable operators have become a new wing of the business Establishment.

A government study last summer determined that in less than two years after deregulation, basic cable rates increased 26%-29%--four times the rate of inflation. The cable companies note in response that if you include premium services like HBO, the increase was only 14%. And if you figure it per-channel, there was no increase at all, thanks to added channels.

The price of premium services went down precisely because they’re in competition with one another--HBO versus Showtime, etc. It’s the basic service that’s the monopoly. As for those extra channels, you can only watch one at a time. Most customers might not feel that the Shoelace Channel, the Herbal Tea Channel and so on are worth exactly as much as NBC or CNN. In any event, the price of cable ought to be going down, not up, as the fixed costs can be spread over more and more subscribers.

The cable companies offer fancy studies by rent-an-experts to “prove” that they actually have no monopoly power; that deregulation has had no effect on the market value of cable franchises; that this market value doesn’t reflect monopoly profits. These arguments bring to mind Groucho’s famous line, “Who are you going to believe: me or your own two eyes?”

In 1983, the year before the deregulation law was enacted, buyers were paying less than $1,000 per subscriber for cable systems. By last year, prices were up to around $2,600 per subscriber. ($2,600 is three or four times what it would cost to build a cable system from scratch.) Now system sales have ground to a halt, and the stock price of publicly traded cable companies is down because of the reregulation debate. That also shows that regulation affects a company’s value. How could it not?

The draft bill now in front of the Senate communications subcommittee would permit cities once again to set rates for their cable franchises if there is no competition and would take steps to promote genuine competition. Cable reregulation will be debated in Congress over the next few months. You can watch the show on C-SPAN--if you can still afford it.