Washington Policy Center consistently promotes a simple principle: Competition is good for consumers. In our free economy, competition is what drives excellence, innovation and, more importantly, low prices, meaning a better life for all the citizens of our state.
Nothing is more motivating to business people than the daily knowledge that their customers will walk the minute they are not satisfied with either the price or the quality of the service being offered. That is why it is so important for government officials not only to refrain from blocking consumers’ voluntary choices, but to actively promote competition when advances in technology make new options available.
This principle applies especially to today’s cable television market. New telecommunications technology is making it possible for consumers to buy cable programming from alternate sources, but government regulators continue to insist on maintaining outdated local cable monopolies.
In the 1970s, building a cable network from scratch was expensive and risky. It made sense for local governments to use the “natural monopoly” model to get the new technology established. Like mail delivery or early phone companies, the government offered cable providers insulation from competition in return for offering universal service. The local cable company strung wires and installed a TV box for any homeowner who asked for it. The customer paid a set price and local officials collected taxes and franchise fees. As a result cable service became widely available and cable companies earned a secure return on the huge capital investment they had made while building the network.
After three decades, though, monopoly cable no longer makes sense. Cable companies still provide universal service, but for municipal officials the original purpose of serving the customer has been lost. They now see the local cable franchise as just another lucrative revenue source, and as the years pass local governments squeeze it harder.
Cable companies are increasingly required to pay higher taxes, fees and to give valuable channels to local governments for free. Sometimes cable companies are even required to deposit lump sum payments directly into city treasuries just to continue in business. Cable companies have no choice but to pass higher tax and franchise costs on to their customers. That is one reason cable prices have risen three times the rate of inflation for the past decade.
As for local governments, their leaders have become too dependent on money from cable franchises. Now that cable monopolies are locked in, elected officials don’t want to give up the captive revenue stream. After all, it’s not like cable customers can take their business somewhere else if they don’t like the arrangement.
But now alternatives are possible. Advances in telecommunications and digital processing allow phone calls, fast Internet access and video and TV programming all to be delivered over one wire. None of this technology existed in 1975. Telephone companies, which have been open to competition for years, are eager to offer a range of new, cost-competitive services to their customers. The technology exists, but local franchise regulators are standing in the way.
There is an irony here. Years ago the cable companies wanted to offer phone service over their cable wires. Naturally, telephone companies across the country protested. Today, the phone companies want to offer cable programs over their phone wires. Guess who’s protesting now? The answer is to allow both. Regulators should slash artificial barriers, let cable compete for phone service (which is already happening), let phone companies offer cable, and set up one franchising process that cannot be blocked by local governments. Savvy consumers will quickly sort out what type of service they want and price that works best for them.
In recent decades the radical deregulation of airlines, trucking, railroads, banking and telecommunications have unleashed an explosion of innovation and choice for consumers that has made the U.S. economy the most dynamic in the world. The reason the Internet has succeeded so spectacularly is that government officials avoided smothering it with arbitrary rules and red tape. The government’s hands-off approach means that ideas and investment flow where they are needed most, and because of it America is at the forefront of an unprecedented digital revolution.
The same dynamic will work for cable. New technologies make possible a range of programs, services and low prices that were unimagined in the past. The cable monopoly model outlived its purpose years ago. It’s time for government to step back and let cable customers join the digital revolution.
Paul Guppy is vice president of research for the Washington Policy Center, a nonpartisan, nonprofit research and education organization (washingtonpolicy.org).
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