Hard-wired

Hard-wired

Hard-wired

Moneybox
Commentary about business and finance.
March 23 1999 6:22 PM

Hard-wired

So this is the brave new world of telecommunications reform: three or four giant cable companies, five or six giant telephone companies, each free to do as it will in its particular fiefdom, and hardly a trace of competition on the horizon. Somehow you knew, when Washington embraced telecom and cable deregulation as the cause du jour in 1996, that what the cable and telecom lobbyists meant by deregulation wasn't "competition" but something closer to "opening the door to huge monopoly profits."

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It's possible to see yesterday's announcement that cable giant Comcast will be acquiring MediaOne in a $49 billion deal in different terms. The deal will strengthen Comcast's bargaining position with cable content producers. The merger will (as all mergers are supposed to do) reduce costs by eliminating duplication. So Comcast will be able to invest more heavily in infrastructure. That, in turn, will allow it to offer Internet and other broadband services. The information superhighway will finally make its way into the homes of Comcast subscribers.

Perhaps. But that begs the question of why continued consolidation and a continued absence of competition are necessary for success in the cable industry. In the past two years, cable stocks have boomed, in no small part because of a series of legal decisions and business developments that have seriously reduced the potential impact of competition from phone companies and satellite-TV companies. AT&T, instead of making its own play in broadband services, bought TCI. EchoStar, the satellite-TV company that some believed represented a serious challenge to the cable monopoly, nearly went out of business. The Regional Bell Operating Companies (RBOCs) have fought local phone competition so fervently as to call to mind Southerners in the wake of Brown v. Board of Education, which in turn has hindered the efforts of companies like RCN, which wanted to compete in the local, long-distance, and cable markets simultaneously.

So it's a good time for cable. Yet none of these profits have been passed along to the consumer. On the contrary, cable rates are rising at well above the rate of inflation and will continue to do so for the foreseeable future. Every serious study of the subject has shown that cable rates in the few regions where there is meaningful competition are significantly lower than those in regions where there is effectively one supplier. Now, it's not as if Comcast and MediaOne were slugging it out in cities across the country. But every cable operator that's swallowed up is another cable operator that doesn't have the chance to encroach on a competitor's turf.

Is there an answer? One short-term solution might be to reintroduce regulation of cable rates, at least until these markets reach some level of measurable competition. Re-regulation probably wouldn't matter much, since most local cable commissions were in the back pockets of the cable companies anyway. But it might at least curb some excesses.

The real answer is the one the Telecom Act thought it was proposing: namely, deregulation. But what that would look like remains amorphous. Ideally, as new companies like Qwest build entire new networks of fiber-optic cable, the stranglehold that the RBOCs and the cable operators have on individual households will weaken. But that will happen only if we recognize one basic principle: The control that the RBOCs and the cable companies have over the "last mile" of cable and phone lines that actually run into people's houses is not a property right but the vestige of a regulatory environment in which these companies have been the beneficiaries of public largesse. Other companies should be able to lease those lines at a reasonable cost.

Recognizing this principle--which the FCC has already done in the case of the RBOCs, at least in theory--would turn everything upside down. But then real competition always does.