What's Good for Cable Isn't Good for Consumers

The cable television industry cranks up rates on restive subscribers, while Washington winks and nods. With powerful friends in the capital city, the cable business operates essentially without restraint. It continues to consolidate, while Microsoft, rich but friendless, takes the antitrust heat for the excesses of the mass telecom industry.

Cable rates are soaring nearly four times faster than inflation. Increases range from 7 to as much as 12 percent in some areas. Under the Federal Communication Commission's (FCC) relaxed price-regulating standards, cable rates have risen persistently since advocates of the 1996 Telecommunications Act assured cable viewers of more choice for less money.

FCC chairman William Kennard acknowledges that the increased competition Congress envisioned "is not there and is not imminent." Nonetheless, the commission, protective of industry, has termed a call by Consumers Union and Consumer Federation of America to freeze rates an "absolute, absolute last resort."

Washington's antitrust enforcers narrowly define Microsoft's sin as using its Windows product to leverage the Explorer browser onto computermakers. But the excesses of an unleashed cable industry carry rather broader implications about an essentially unregulated utility that is now supposed to give its users the benefit of competition but increasingly does not.

Most cities and towns have granted monopoly status to their cable franchisees, leaving subscribers without a comparable alternative. Industry spinners argue from one side of their mouths that viewers can always buy a satellite dish and decoder and take wireless television. From the other, they assert that increased competition forces them to raise, not reduce, their prices. The truth is, cable runs roughshod over consumers because satellite TV fails to offer them a better deal. Installation costs of the dish and decoder are far more expensive than initial cable costs. Also, satellite can't provide the local coverage that cable delivers.

Cable executives complain they must cover programming costs that have skyrocketed 20 percent in a year. What they don't say is that the eight largest cable systems own major equity in more than half of the most popular program channels. These program subsidiaries generate higher profits for owners in both subscriber fees and advertising, while consumers are asked to subsidize the higher programming overheads. That is tele-chutzpah.

Such interlocking ownership once would have drawn lightning bolts from federal antitrust enforcers. To cite two examples: Time Warner and TCI, the two largest proprietors of cable systems, co-own the Cable Cartoon Network. Time Warner also shares HBO with US West, the owner of MediaOne, the third largest cable system.

At the same time, competitors have complained to the FCC that the big cable conglomerates have denied them equal access to these programs at fair prices. Ameritech, one of the few phone companies to enter the cable business, has been promised some assurance of relief from price discrimination by regulators.

But cable's unrelenting consolidation limits competition. The six largest multiple operators now control fully 70 percent of the national cable market. The goal of consolidation, TCI's chairman John Malone says, "is to eliminate the balkanization in the cable industry" in order to "do a better job for Madison Avenue."

"When the smoke clears," he says, virtually every region in the nation "will have a dominant cable operator."

That may be efficient for big operators and advertisers, but is it good for competition and choice? Shouldn't "de-balkanization" raise questions about restraint of trade, a cardinal point of antitrust law? Shouldn't antitrust statutes protect the interests of consumers as well as defend competitive markets?

The cable conglomerates are counting on increased revenues to service their large debts and to underwrite their capital-intensive move into digital television. TCI and several other industry drivers have just struck a $4.5 billion deal with General Instruments Corp. for 15 million digital set-top video computers in a box.

This represents the cable industry's big wager that its high-speed wires coupled to the TV set, not the personal computer, will be the popular intersection where screen and Internet meet. The digital smart box will eventually bring not only sharper, high-definition pictures, but access to an interactive myriad of services - e-mail, Web browsing, video telephony, data links, municipal and community services, and home-systems monitoring.

Cable gambles that its perpetually unhappy consumers will grumble their way through yet another round of fee hikes in exchange for a passport to this digital Eden.

The shape of the info-future, as the public rush to tie into the Internet demonstrates, is in these disgruntled customers' hands. They can say no to the smart box. Fed by viewer discontent, some municipalities, including Tacoma, Wash., have founded their own competing cable and telecommunications services. Electric power utilities also are potential competitors.

Cable industry actions have been undermining the pro-competitive rhetoric of federal policy. The romance of deregulation and the relevance of the old antitrust laws to the new technologies of mass communication are on trial.

* Jerry M. Landay writes on media and democracy issues from Urbana, Ill.

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