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Media Mafia Cable Industry Corruption (Part Four) – A “Natural Monopoly” and the Cost of Broadband Services

Alex Constantine - September 7, 2007

Edited by Alex Constantine



Senate - June 09, 1995

Mr. LEAHY. Mr. President, I understand that some negotiations were going on while we were in the quorum call.

I would like to note some of my feelings on this bill, because I will have a number of amendments and will be joining with others on amendments, including, for example, the amendment of the Senator from North Dakota, on VIII(c) and others.

Mr. President, the telecommunications bill that we are considering will have an enormous impact on multibillion-dollar cable, phone, and broadcast industries. ...

Senator Thurmond, the chairman of the Antitrust Subcommittee, and I held a hearing on this bill a few weeks ago. One witness pointed out there are only two things standing between a monopolist and the consumer's wallet: Competition or regulation. You need one or the other, because if you get rid of both, the consumer may as well just hand over his wallet.

Some of the efforts made in doing away with regulation give some of the telecommunications giants a license to print money. They certainly will not reduce prices--if all regulation is done away with, and there is no competition there. What is their incentive? To lower costs? Of course not. That is as apt to happen as a belief in the Easter bunny. The fact is, they will raise costs.

So I have a number of questions. I hope with some amendments we can address some concerns I have with the bill.

First, the bill would permit our local phone monopoly to buy out our local cable monopoly so the consumers have even less choice. If you have just one monopoly cable company and one monopoly telephone company, and that telephone company buys out the cable company, do you really think rates are going to go down for your cable service? Of course not. We have not found any cable companies by themselves that have been eager to lower rates, and they do not. Suddenly, if there is no regulation and no possibility of competition, one company owns both the telephone and the cable, it does not take a genius to know what happens. The price goes up. In fact it is a new version of Willie Sutton, go to that monopoly because `that is where the money is.'

So, as we stand on a precipice between a new world of healthy competition between telephone and cable companies to serve all consumers, let us not go back to a one-wire world, where one monopoly company does both cable and phone service.
" ... When the Consumers Union goes on a tear about a consumer issue, it's something worth listening to. And they've gone on a tear about your cable bill. Want to know why your cable bill is so high? The Consumers Union, in a report, CABLE MERGERS, MONOPOLY POWER AND PRICE INCREASES, tells you in no uncertain terms why: The cable companies are a local monopoly and they charge monopoly rents. (In a sense, it's not their fault. They are natural monopolies--but the effect it has on your pocketbook is the same.) ... "
Cable TV Reregulation: The Episodes You Didn't See on C-SPAN

Thomas W. Hazlett

Thomas W. Hazlett is an associate professor of agricultural economics at the University of California, Davis. From 1991 to 1992 he was chief economist at the Federal Communications Commission.
The story seemed so simple that headlines told it all: "Rising Rates Bring Cable Firms Static from Public," asserted the Los Angeles Times. Greedy cable companies were gouging customers with "an annual overcharge of $6 billion," Rep. Ed Markey contended. Federal legislation to deregulate cable in 1984 had led to skyrocketing rates—up 61 percent in the first four-and-a-half years—as this uncontrolled industry was "arrogantly [flexing its] raw, unbridled monopoly power" according to then-Sen. Albert Gore. Reagan-era reforms allowed the free market its chance, and consumers soon concluded that the industry could not police itself.

It was clearly time for government reregulation to correct the free-market excesses of the 1980s. Even the cable operators, who argued that years of rate regulation had "artificially" kept cable rates low, unwittingly conceded that deregulation had led to a surge in prices. The industry, denying that cable companies held monopoly positions, struck a pose as defenders of free enterprise. That could have played well on the Comedy Channel.

The Legislation

What came out of the Beltway clash between the forces of good and evil was the Cable Consumer Protection and Competition Act of 1992. This omnibus regulatory measure ostensi-bly permits local governments to again control cable rates, instructs municipalities to stop awarding monopoly franchises, strikes down predatory tactics of incumbent cable operators, and allows broadcasters to charge cable companies for retransmitting their off-the-air signals. The bill's chief proponent, Ed Markey, chairman of the House Finance and Telecommunications Subcommittee, confidently argued that the legislation would roll back basic cable rates by one-half. With analytical minimalism he asserted, "This is a very simple debate. A yes vote is for the consumer, a no vote is for the cable industry, make no bones about it." ...

Cable Companies Come Under Fire For Antitrust Actions
from the trouble-in-monopoly-land dept

As we've stated (yes, ad nauseum by this point), the real issue in the net neutrality/broadband world is the lack of real competition in the space.

The telcos and their lobbyists hit back claiming that there's "plenty" of competition -- and usually trot out the FCC's misleading stats that only look at broadband on at the zip code level (so if a provider offers broadband to a single house in a zip code, the stats claim it offers it to all houses in that zip code). There's also a question about whether or not two competitors (telco and cable, in most cases) represent real competition or not.

However, it appears that both telcos and cable companies are facing legal challenges concerning monopolistic behavior in various markets.

The Supreme Court has agreed to hear a case that accuses the telcos of collusion in not competing in local markets following the Telecom Act of 1996. That Act was supposed to encourage competition, though it's since been gutted. However, even when it was fully in place, the regional telcos still chose not to move to get into the markets that the others ran -- thereby leaving them each with a local monopoly.

The telcos claim that since there's no evidence of overt collusion, there's no truth to the collusion claim. Meanwhile, in the cable world, Arizona is looking at fining Cox $2 million for arranging special deals that would prevent any competitors (including telcos) from offering service in new developments. So, whether or not you believe that there really is a competitive market in these services -- it certainly looks like the companies in this space are doing everything they can to keep as monopolistic a position as possible.
Cable Companies Monopoly Equals Lower Service and Higher Prices

The effectiveness of capitalism requires the safeguarding of the fundamental principles of free markets and competition. If these principles are disregarded and not properly protected, the consequences are undesirable imbalances that lead to lower service and higher prices. Without competition, companies can charge whatever they feel they are entitled to and there is no incentive to improve their service.

Just recently I have experience this first hand and would like to report this unfortunate event so that, united, consumers can fight with the best weapon available to us: how we spend our money. In the area where I live, cable service used to be provided by Time Warner Cable. There is no other cable service provider in the area, so if you want cable TV or high-speed internet through cable your only choice was to sign up with Time Warner. Time Warner’s prices in my opinion were high for the service they provided.

But the real problem with the lack of competition in this market became really apparent when Comcast acquired Time Warner and moved in the area. Suddenly, I started experiencing constant service interruptions unlike anything I had experienced before. The internet connection was noticeably slower, and the lack of connection was frequent enough to the point where it became annoying. Other people in the area seemed to be experiencing similar problems.

To make matters worse, this month Comcast increased the price of their internet service from $44.95 a month to $52.95 a month. This corresponds to a 17.8% increase, or the equivalent of approximately 6 times the rate of inflation! And that is not all. The $52.95 rate will only be available for 6 months. Comcast has been “kind enough” to give a $10 discount for the first 6 months to previous Time Warner customers. What this means is that in 6 months the price will be $62.95 per month, AN INCREASE OF 40% OVER THE ORIGINAL PRICE!

This may seem naïve on my part, but I could not simply accept this without at least calling them to express my discontent. When I complained about the higher prices for lower service their response was to call Technical Support if I was experiencing technical difficulties. Then they asked if I had any other questions. What they were really saying is that they don’t care about my dissatisfaction with their worse-service-higher-prices business model.

Although the alternatives to cable companies’ poor and overpriced service are limited, there are alternatives. If you want premium channels, instead of cable use satellite services such as Direct TV or Dish Network. Instead of cable, DSL may be an acceptable alternative for high speed internet. In the future, telephone companies may also provide video service. I am definitely considering transitioning to DSL. I cannot fathom paying $62.95 a month or $755 per year for internet service that is at best unreliable.

Deregulation of cable monopoly leads to more options in "black boxes"

The Market Economy vs. The Monopoly

Consumers must stand strong and fight back against these types of abuses from monopolistic enterprises. If consumers refuse to pay these outrageous prices for poor service, companies like Comcast will have to change their ways in order to survive. There is only one way to respond to a situation like this. Refuse to give them your business.
LV Business Press
March 20, 2006

Most of us in Nevada aren't fans of Big Government.

When we grumble about trigger-happy bureaucrats and excessive regulation controlling our lives, we tend to blame federal officials in far-away Washington, D.C. Typically, Westerners think of local government as less government, more in touch with reality because it's run by people we can actually look in the eye - or at least get on the phone.

But when it comes to the issue of bringing competition to the cable-TV market, all bets are off. The bureaucrats fighting against letting me pick the cable-TV provider I want are at the local level and the voices demanding less regulation and more competition are in Washington. How's that for a turnaround?

I'm proud to say one of those voices belongs to Sen. John Ensign. He was among a bipartisan group of senators that recently issued a set of "Video Competition Principles" that call for a streamlining of local cable-TV franchising regulations that will "promote broadband deployment" while making sure that "core state and local interests" are protected.


Under the outdated franchise regulations in effect today in Nevada, and most every other state but Texas, a new competitor can't come to town and make me a better offer for cable service without first negotiating a "franchise" with my local government.

There are no fewer than 33,000 local governments with video franchising authority, and a company that wants to offer cable-TV service nationwide has to negotiate separate agreements with every blessed one of them.

This system was developed 30 long years ago - and it's been used ever since to preserve the practice of granting exclusive cable franchises (monopolies) in each local jurisdiction.

It seems to me this system's sole purpose today is to discourage new competition to the entrenched cable-TV companies. But unlike 30 years ago, there are actually viable competitors ready to give the cable monopoly a competitive run for your money. Phone companies like Verizon and AT&T have invested billions in Internet-based, high-speed networks that will let them compete head-to-head with the cable companies - not just for cable-TV, but for high-speed Internet access and voice-over Internet phone service as well.


Delaying these new competitors from entering the market is hitting us all in the wallet. A study by the Phoenix Center think-tank calculates that one year of delay in competition will cost Nevada consumers $103 million in lost savings from price reductions, and almost $441 million over four years. In terms of losses per household, Nevada will take the biggest hit. A year's delay of competition will cost the average household between $136 and $582 over five years.

By contrast, consumers are enjoying big savings in markets where new competitors have managed to sluice their way around the mountain of local franchise requirements. It's no surprise that the cable companies have room to cut rates. According to Sen. Ensign and the other signers of the "Video Competition Principles," since 1999 cable companies have raised their prices by 60 percent. During that same period, prices for long distance calls went down by 30 percent, and wireless phone service prices dropped by 20 percent.

We'd all welcome the bargains that cable competition would bring. And if I want to get that bargain from a new company, I don't see it as the cable company's or the government's role to tell me I can't. Nevadans themselves should be able to make the decision and not have it made for them.


New report takes critical look at how cable companies try to justify large rate hikes

WASHINGTON, DC -- This month, cable television companies are raising basic cable rates substantially for consumers in every region of the United States. For example, as of January 1:

· Cablevision in Long Island, NY raised standard cable TV rates by 10 percent.

· Comcast in Washington, DC raised standard rates by 9 percent, including an "upgrade fee" last fall.

· Time Warner Cable systems in Orlando, FL and San Antonio, TX raised standard rates by 7 percent.

· AT&T Broadband systems in St. Paul, MN, Chicago, IL, and Boston, MA, raised standard rates by 7 percent.

When cable companies raise rates, they often blame the cost of programming, such as sports channels, and the expense of upgrading systems. But a new report by two of the nation's leading consumer groups says that these reasons do not stand up to scrutiny.

Consumer Federation of America and Consumers Union, the publisher of Consumer Reports magazine, state that the primary reason that cable rates have skyrocketed in recent years is that cable companies are taking advantage of their monopoly power. The groups say that exorbitant cable rate hikes are largely due to the lack of direct competition that exists for the vast majority of cable companies nationwide.

The report, entitled "Cable Mergers, Monopoly Power, and Price Increases," says that industry and government data show that cable revenues are rising much faster than industry costs. Revenues from advertising, digital cable, and other add-on services are enough to cover the expense of upgrades and programming costs. The latest round of large rate hikes is not justified.

The report also points out that approximately 40 percent of the top cable channels (as measured by subscriptions or prime time ratings), which command the highest prices, are owned in whole or in part by cable operators or companies that have large ownership stakes in cable companies. In other words, for a substantial part of the cable industry, rising programming prices is just a transfer from one division of the cable company to another, which comes out of the consumer's pocket.

"Cable companies would not be able to raise prices nearly as much if they did not have monopoly power," said Mark Cooper, Research Director of Consumer Federation of America and the author of the report.

The groups criticized the Federal Communications Commission (FCC) for failing to do enough to encourage competition in the cable and satellite markets and failing to protect consumers from the cable industry's abusive pricing. They urged Congress to take a hard look at the Telecommunications Act of 1996, the law that initiated the deregulation of the cable industry.

Since the law was approved, cable rates have increased 45 percent, or nearly three times the rate of inflation. The groups said Congress should overhaul the law in order to deliver the benefits of competition and lower prices that the law originally promised. They said Congress must empower state governments to hold down prices and treat cable monopolies the same way they treat telephone monopolies.

"If Congress restores state power to prevent cable price gouging, it can correct its mistake of allowing cable monopolies to abuse consumers and thwart the growth of video competition," said Gene Kimmelman, senior director of public policy and advocacy for Consumers Union.

For consumers frustrated with higher cable rates, there are not many direct alternatives. 95 percent of American homes have only one cable company, while the 5 percent who have choice between two cable companies that compete head-to-head pay about 17 percent less on average. Satellite TV is one choice worth investigating. Satellite companies offer TV channels at rates that are comparable to cable in some areas, but the overall cost of satellite is often more expensive when installation and equipment costs are added. Furthermore, satellite TV does not offer local channels in some areas due to technical limits, and satellite dishes do not work unless they have a clear view of the southern sky.

For more information about cable television prices, visit the Consumer Federation of America website at www.consumerfed.org and Consumers Union's web site at www.consumersunion.org
Save $$$: End the Cable TV Monopoly
Sunday 14 January 2007, by admin

For many years the Simi Valley City Council gave a monopoly for cable TV to Comcast, arguably the worst cable operator in the nation.

Then Comcast, sold out to Adelphia, and they were worse than Comcast—but government continued the monopoly.

Now, Adelphia has been taken over by Time-Warner—they give you bad equipment, have worse service, but it does make its subscribers religious! Every time to try to turn TV connected to Time-Warner on or off you must pray it works.

Of course the Simi Valley City Council continues the monopoly. Happily we now have phone companies barging into the mix, along with Direct and Dish TV in town.

You would think Time-Warner would want to provide better service, but they don’t and the City Council says there is nothing they can do. Of course, they could end the monopoly and say that the free market will control service, not government.

April 28, 2005

Cable Needs Competition, Not Monopolies
A look at the telecom debate in Texas.
By Wayne T. Brough, Ph.D.

A considerable debate has emerged surrounding Rep. Phil King’s recent bill, H.B. 3179, which has become the fault line in a battle between those trying to preserve a government-granted monopoly and the would-be competitors seeking to break into the market. Much of the early rhetoric targeted the “communications fee” in the bill, but this is just a sideshow to the much more important question of whether or not cable television will face new competitors in the marketplace.

To be sure, the communications fee has been a key concern for municipalities desperate for revenues, but in an emerging competitive market that is based on risk rather than monopoly privilege, it may no longer make sense to deputize communications providers as tax collectors. The revenues fund the general budgets of these municipalities and have little to do with the provision of communications services. The fees may better be viewed like any other tax that individuals must pay, and, as such, they should be put forward to allow taxpayers an opportunity to vote on what they view as the appropriate tax burden. This may be why the section on communications fees was stripped from the bill that ultimately passed the House Regulated Industries Committee by a 5 to 0 vote.

This shifts the focus of attention to the heart of the bill, which determines the ability of phone companies and other video service providers to offer video services in markets where cable television claims a monopoly. The revolution in telecommunications is breaking down barriers and monopoly providers no longer have the protection and guaranteed profits that once existed. Wireless telephone service is surpassing land lines, cable companies are providing telephone services, and now phone companies want to provide video services. Given the degree of competition, entering new markets entails a risk that did not exist when each monopolist tended its own fields and paid the state or local government for the opportunity to do so in a risk-free monopoly environment.

In today’s market the lines have blurred. Testifying before the U.S. House of Representatives about competing against phone companies in the broadband market, Robert Sachs, President of the National Cable and Telecommunications Association. stated the FCC “should adopt ‘deregulatory parity’—that is, the Commission should remove regulatory constraints, not add new ones.” When discussing whether cable companies should be required to comply with regulations that applied only to phone companies, Sachs went on to say, “Imposing those legacy regulations—and the costs associated with them—on cable for no reason other than to achieve regulatory parity will harm consumers by raising the price or lowering the quality of cable modem service. It would provide a disincentive for new investment (emphasis added). ...

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