Time to Rein In the Monopoly of Cable : Television: As cost of basic service increases, the need grows for control--through regulation or competition--of the cable industry.
Cox Cable San Diego recently announced a $2 increase in its monthly price for basic cable television service--from $17.95 to $19.95--a jump of more than 11%. For the angry subscriber whose yearly cable bill costs about as much as a television set, unfortunately, there is no recourse.
The only thing TV viewers can do is go back to an antenna.
Cable operators are, for the most part, local monopolists, free from effective competition, yet unhindered by public regulation. Rectifying the situation will be difficult. But regulating cable is as important as regulating telephone companies.
Long considered a supplement to traditional over-the-air broadcasting, cable for decades was tightly controlled by the Federal Communications Commission. Between court challenges and fundamental policy changes, the FCC loosened its hold, and by the late 1970s the industry began to take off. The control over cable fell to local governments. Cities offered exclusive franchises to competing bidders and set the rates for service. Franchise winners paid cities a franchise fee, based on a percentage of gross revenues.
The exclusivity of the franchise was based on the reasonable assumption that cable constituted a natural monopoly, that laying the wires necessitated the use and disruption of public streets and easements, and that the city could require the franchisee to provide service to all neighborhoods--not just those likely to subscribe.
As one might imagine, the reciprocal wooing between cable entrepreneurs and city councils led to some corruption. As a response, Congress passed the Cable Communications Policy Act of 1984 reputedly to take the “politics” out of cable franchising. Those politics, however, represented the only means for public participation in the shaping and oversight of an important and evolving communications service.
The Cable Act reflected the cable industry’s new power. The main features of the legislation were to deny local governments the authority to set rates and to make it very difficult for cities to revoke or fail to renew a franchise.
The results of the legislation are very clear. Between December, 1986, when deregulation went into effect, and October, 1988, subscribers’ average monthly bills increased 29% for basic service, according to a recent Government Accounting Office report. And this number is probably low, because the figure was calculated from a voluntary survey of cable companies, many of which did not reply.
The question of whether and how a cable franchise can be regulated has been debated inconclusively in the courts for several years.
The cable industry’s first choice would be to be considered an “electronic publisher” and protected by the First Amendment, which would proscribe regulation. If the courts do not buy that argument, then ironically, the cable industry would argue against exclusive franchises, for fear that they might lead to cable companies being considered public utilities, which would lead to regulation.
The cable industry argues against exclusive franchises and supports the principle of competition, because it has no competition. The initial franchise, awarded in the days when cities regulated cable, has become a source of nearly unchallengeable economic power--in effect, a government-granted monopoly. The likelihood of another firm stringing wire to compete with Cox Cable is negligible. The costs and the uncertainty of winning a profit are too great. Indeed, only about 1% of cable customers nationwide live in competitive markets.
One of those markets is here. In parts of Chula Vista, Cox and Chula Vista Cable compete. A comparison of rates and offerings is instructive. In May, 1989, as Chula Vista Cable got going in earnest, it offered a 42-channel system (with a 60-channel capacity) at a basic charge of $11.85 per month--30% lower than Cox’s 36-channel system. Where they competed directly, Cox offered to drop its normal charge to match Chula Vista Cable’s. And, although Cox already had plans to upgrade its service from 36 to 60 channels, the threat from Chula Vista Cable probably firmed up those plans.
The conclusion appears clear: where there is competition, rates are down and service is up. But, in some respects, that is just an appearance.
Chula Vista Cable has wired some condominium and apartment complexes, and, though its franchise agreement compels the company to wire the city generally, there is no indication it will do so and no indication the city will enforce that provision. Indeed, many believe Chula Vista’s ultimate gambit is to be bought out by Cox. This would replicate the experience of other cities with competing cable systems.
There are two general solutions to the problem. Either there must be effective competition or re-regulation.
The only real potential for competition rests in allowing telephone companies to enter the cable television business. Many telephone companies are very interested in doing so. Among other reasons, the cable business would provide them with a revenue stream for the expensive task of replacing the old copper wire into homes with optical fiber.
But they are prohibited from providing cable television by the FCC, the 1984 Cable Act and the AT&T; breakup final decree. (And, despite its pro-competitive cant, the cable industry vehemently opposes entry by telephone companies.)
Absent competition, local governments must be permitted to regulate rates. Congress nearly restored some of that authority this fall, but the proposed legislation died in the Senate. On Thursday, the FCC proposed rules that could give to some cities the oversight power they need. Without it the public has no rights and no voice.