Cable TV Industry Needs Competition, Not Regulation

DISSATISFACTION with cable television is widespread and growing - almost as fast as its use. Consumers like the greater program variety and quality of reception made available by the cable stations, but they object to what seems to be a steady trend of price increases unaccompanied by corresponding improvements.Not too surprisingly, many members of Congress - in both parties - are responding with proposals to subject cable TV to the old-fashioned style of price regulation that has been successfully eliminated in the airline industry and other transportation markets. Such a move runs counter to the experience of the past decade and more: moving away from government controls on prices, profits, entry, and other decisions traditionally left to business - and instead relying more on the marketplace. In the absence of regulation, how then are consumer interests served? The answer, of course, is readily known to anyone who has taken an elementary economics course - competition. To be sure, any producer is free to raise prices under this approach. But a competitor who does not match that move is likely to gain new customers at the expense of the firm with higher prices. Competition thus protects the consumer. In cable TV, however, we have the worst of both worlds. A provider of the service has the discretion to set prices, but local regulation inhibits and often prohibits the entry of competitors. How, then, are consumers protected? The answer, sadly, is they aren't. The local government typically has entered into a "sweetheart" deal with a cable company under which, in exchange for the monopoly franchise, the company provides special services to politically powerful groups and often shares ownership with prominent members of the local community. All this occurs at the expense of the consumer. Is there an alternative? Of course. Cable television is not a "natural" but a created monopoly. There is no inherent or technological reason why at least two companies cannot compete for this business, at least in many localities. John Merline, editor of Consumers' Research Magazine, has identified a number of situations where the entry of a second cable company in a given community has lowered prices - and often improved service to the customer at the same time. For example, in early 1990, residents of Montgomery, Ala., were paying $18.25 a month for 29 channels of basic service. Without any intervention by a governmental regulatory authority, the cable company lowered its monthly rate by almost $2 while expanding its basic system to provide 61 channels. What brought about this sudden burst of consumer affection on the part of the company? Surprise. Two weeks earlier, another cable company was about to be broken and it responded in a way that any student of competition would expect - it became more competitive. This is not a unique case. In Henderson, Tenn., the original provider charged $14.95 a month for basic service featuring 17 channels. When a competitor arrived in 1988, the company quickly lowered its rate to $9 a month and increased its basic service to 30 channels. Some cross-comparisons are also illuminating. In Alexandria, Va., the local cable company charges $21.20 a month for 43 channels of basic cable. In Anne Arundel County, Md., the same company provides 47 channels for $16.95 a month. Yes, the difference is competition. In the Virginia city, the company enjoys a monopoly, while in the Maryland county it faces a local competitor. Clearly, there is nothing "natural" about the high-cost, low-service cable TV monopoly that municipality after municipality has created across the United States. The answer is not for the federal government to impose another layer of regulation, but to allow companies to compete for the consumer's dollar. Competition, rather than regulation, is the best way of protecting the public interest in cable television, as in other markets.

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