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Stemming Tide of Rising Cable Rates

Posted on: Saturday, 18 March 2006, 00:00 CST

Comcast rates are going up again. The latest rise in the price of basic cable service and premium channels likely will spur calls by irate customers for increased government regulation to bring rates under control. Yet, will more regulation make a difference? In the last decade, cable rates have steadily gone up. That certainly has been true with Comcast, the nation's and Lancaster County's largest cable company. Comcast is the dominant cable company here, with 100,000 customers. Blue Ridge cable serves only a small portion of northern Lancaster County. Starting this month, the price of Comcast's standard package, its most popular service, will increase by 6.2 percent for Lancaster County customers. Premium channels will go up in price from 11 to 19 percent. Services across the board will increase an average of 4.5 percent. Comcast says the rate hikes are due to, among other things, "the increased cost of providing service and operating a business." That's the usual refrain from cable executives. But Benjamin Powell, director of the Center on Entrepreneurial Innovation at the Independent Institute in California, sees another reason

. Powell argues that government regulations force millions of Americans to pay too much for cable television. "While telecommunications consumers have benefited from falling prices caused by competition over the past 10 years, cable customers have not," says Powell. In fact, cable rates have increased approximately 2 1/2 times the rate of inflation since 1996, the year the Telecommunications Act was approved by Congress and signed by President Clinton. The act, the first major overhaul of U.S. telecommunications policy in nearly 62 years, was aimed at deregulating the telecom industry, including cable companies, and promoting competition. But the law did not have the effect on cable that it had on TV and radio stations, satellite broadcasters, wireless-telephone companies and others. Powell attributes this to the restrictive system that governs how cable franchises are awarded. As it stands now, cable companies must receive franchise permission from each local government in each region they seek to serve. "Some local governments wish to create monopolies by limiting cable provision to a single local provider," Powell asserts. Even when they allow additional entrants into the market, the process of securing permission in multiple communities is so cumbersome that it is a significant barrier to competition, according to Powell. The rationale for limiting a region to a single cable provider was that a single company could serve a region more cheaply than multiple companies because of the high cost of installing transmission lines. Government could then regulate rates so consumers would benefit. However, limiting competition and regulating rates have actually served to increase costs and stifle innovation, Powell claims. The U.S. House and Senate are considering reforms in the way cable franchises are awarded. Among the possibilities are a nationwide franchise regulation, statewide franchising and forming joint committees with states to lower regulatory burdens. However, Powell would go further. "To instill long-term competition in the cable industry, franchising should be abolished and the industry should be thrown open to competition from any wire or satellite provider capable of attracting customers," he argues. Open competition, Powell says, would bring lower prices and foster technological advancements. Something needs to be done to rein in skyrocketing cable rates. More regulation and less competition aren't doing it. Less regulation and more competition could. As they say, a free market is the surest route to success.

Source: Intelligencer Journal

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