Feeding Frenzy Is Consumers' Loss

By , '' Princeton University Press, 1991.

WILL the recent $33 billion merger of TCI and Bell Atlantic result in a new superhighway of video, data, and telecommunications services? Or will it be a super-monopoly?

The TCI-Bell Atlantic marriage marks a quantum leap beyond the 1980s, when operators of local cable companies across the country embarked on a furious merger movement. In 1986 alone, the number of cable-system mergers had a combined value of $8.6 billion, an amount greater than the combined sum spent on all cable acquisitions during the preceding decade. By 1988, such horizontal cable consolidations reached even higher levels, with the value of cable combinations exceeding $12 billion. TCI led this consolidation race by spending nearly $3 billion in buying more than 150 local cable companies between 1984 and 1987. The $7 billion mega-merger of Time with Warner in 1989 combined the country's second and fifth largest local cable operators.

The impact has been dramatic: In 1981, no cable firm operating multiple local cable systems had more than 2 million subscribers; by 1985, about 30 percent of all subscribing households were served by the five largest cable companies; by 1990, the top five cable companies, led by TCI, together accounted for more than half of all cable subscribers nationwide, with the top 10 firms accounting for some 62 percent of all subscribers.

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Meanwhile, cable and video firms furiously bought producers and distributors of video fare. TCI now owns equity interests in 22 production and distribution operations, including CNN, Discovery Channel, and QVC, which is attempting to acquire Paramount. Time-Warner, the nation's second largest cable operator, owns equity interests in eight cable networks. Cox Cable has equity stakes in six programming services and has joined with QVC in its efforts to acquire Paramount. Overall, according to the Federal Communications Commission, cable operators hold substantial financial stakes in 13 of the top 20 cable programming networks and in six of the eight national pay cable networks.

Such consolidation has produced substantial monopoly power. Large cable operators decisively influence the success or failure of program producers by determining which programs will be shown and which won't. The same firms can strangle potential competitors in local cable markets by controlling access to programming. Now comes the latest corporate feeding frenzy: the expansion of the combination movement to encompass cable giants and regional telecommunication monopolies: TCI-Bell Atlantic (including TCI's ownership stake in QVC); US West's purchase of a 25 percent stake in Time-Warner; Nynex joining cable firm Viacom in the latter's attempt to beat QVC in acquiring Paramount; Bell South's $250 million investment in cable firm Prime Management and its $1.5 billion contribution to QVC's hunt for Paramount.

Having eliminated substantial competition within the cable field, the latest stage in merger-mania threatens to eliminate the vast potential competition between telephone companies, which have been straining to offer cable service in competition with local cable monopolies across the country, and cable firms, which have been straining to offer telecommunications service in competition with regional phone monopolies. It threatens to further entrench the domination of regional video-telecommunication superpowers able to determine which services and firms will be granted access to the ``superhighway'' and which will not. For consumers, it portends fewer choices and higher prices.

It is supremely ironic that while we urge the formerly communist countries to open their societies and decentralize their economies, we should permit the ``sovietizing '' of the video-information field and its control by a handful of super-monopolies.

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