We should have learned by now that government is a terrible steward of competition. Its natural impulse is to regulate or manage, when the best it could do is get out of the way. This is especially true when rapid technological change disrupts an industrial sector, like telecommunications, that for decades operated under a restrictive regulatory regime based on the premise all we needed was one provider.
With deployment of high-speed fiber optic networks, broadband providers, phone companies and even power companies are poised to enter the local video market, finally offering American families a competitive alternative that will drive innovation in the industry and deliver lower prices.
The problem is outdated rules governing the industry prevent cable competition. These regulations are a legacy of a different time, when local governments wanted to guarantee local cable providers a return on the investments they made to build out their local networks of coaxial copper wires.
However, those days have long since passed. A quick check of the stock pages shows initial investments have paid off handsomely for major U.S. cable companies. This isn’t surprising, given annual rate increases we have come to expect.
Cable rates rise for any number of reasons. Programmers charge more for the right to air their channels. Cable companies need to pay off expensive investments in their networks so they can offer more advanced services like high-speed Internet access and video on demand. But a factor that cannot be overlooked is insufficient local cable competition.
Where consumers can choose from more than one cable provider, annual price increases are not nearly as great.
Every year, the Federal Communications Commission compiles a nationwide study on cable prices. The most recent FCC report found cable operators who faced no local competition raised their prices 5.6 percent over the previous year, while operators facing competition increased their rates by only 3.6 percent. Equivalent figures the year before were 7.9 and 5.3 percent.
The FCC also found the same result on the total size of your cable bill. The local monopoly group charged an average of $45.56 per month for programming and equipment. Cable providers faced with competition charged only $42.48 a month. That is a difference of $3 a month per subscriber. If one considers the millions of cable subscribers nationwide, there are literally billions of dollars at stake.
More than 90 percent of America’s cable subscribers currently live in noncompetitive communities, according to the FCC’s report. It is clearly time to end the local cable monopoly.
Both Congress and the States need to pass legislation rolling back the barriers to entry in the industry that prevent competition and hurt consumers.
Texas provides a great example of how this can work. The FreedomWorks army of grass-roots activists pushed hard all year for a bill that ushered in sweeping telecommunications reform by removing the roadblocks to competitors trying to obtain the right to offer video services in a local market.
The new law, passed in September, opened the door for increased competition and innovation, including deployment of new technologies such as video programming over phone lines. Since the reform bill passed, the Texas Public Utility Commission has received applications from companies to offer television services to 83 areas in Texas.
Unfortunately, it is too late to stop this year’s price increases in other states. Newspapers have already reported a 6 percent increase in the Philadelphia area by Comcast, another 6 percent increase for Time Warner’s customers in the New York area, and a relatively modest 2.3 percent bump nationwide for Cablevision subscribers. Cox, the other major national player, says rates are set by local offices, but has admitted they will “most likely” increase in 2006.
It’s time for a change. So let’s make 2006 the year of telecommunications reform, and vow to do everything we can to ensure policymakers in Washington and the 50 state capitals understand it’s time for government to get out of the way of local cable competition.
Richard Armey, House Majority Leader from 1995 to 2003, is chairman of FreedomWorks, a national grass-roots advocacy organization dedicated to lower taxes, less government, and more freedom.