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III. WITHOUT WIRELINE COMPETITION, CABLE RATES WILL CONTINUE TO RISE.

In separate studies, both the GAO and the FCC found that cable rates are lower in areas where competing cable service is available from a second wireline provider than in areas where there is no wireline competition. The GAO study found cable rates to be 17% lower, and the FCC found rates were 8% lower, where a second wireline competitor exists. However, according to the FCC, only 2% of the 33,246 cable community units have competition from more than one wireline provider. The seven largest cable operators, which account for 83.8% of all cable subscribers, are incumbents that do not compete against each other. The largest of these is Comcast with over 21 million subscribers, and the seventh largest is Mediacom with 1.5 million subscribers. In contrast, the three largest competitive cable providers, which compete in the same markets against the largest cable operators, are RCN with 426,700 subscribers, WideOpenWest with 310,000, and Knology with 124,700.

A. DBS Service Does Not Constrain Cable Rates.
Both the GAO and FCC have determined that the provision of DBS service does not have any effect on cable rates. The National Cable Television Association (“NCTA”) submitted statements to the FCC stating that market power is restrained to the extent that there are competitive alternatives available to which customers could turn if a cable operator attempted to raise its prices. Local governments offer the following factors as possible explanations as to why DBS does not present a true “competitive alternative” for the customer and thus does not restrain cable prices:

• Non-Interchangeable Equipment. Wireline competition may be more price competitive than DBS against incumbent cable service because it is easier for customers to switch between wireline competitors using cable modem and set-top boxes than it is for customers to switch between dish systems and cable boxes.
  
  
• Provision of local channels. In the GAO study, 47% of respondents cited the ability to receive local broadcast and cable channels from the same provider as a major reason for selecting cable, and DBS providers confirm that provision of local broadcast channels increases subscription rates. Yet local broadcast channels are offered by DirecTV or Echostar in only 62 of 210 television markets and local channels are offered by both providers in only 41 markets. In addition, DBS does not carry local PEG programming.
  

B. Consolidated Cable Incumbents Are Using Aggressive Marketing to Eliminate Wireline Competitors.
Competitive broadband providers, including nascent cable system overbuilders, have complained of incumbent cable operators using aggressive marketing tactics – including deeply discounted introductory rates, e.g., $24.95 per month for 200 channels compared to $77.90 per month in the neighboring community without wireline competition; cash bonuses, e.g., $200 to switch to the incumbent’s cable service and another $200 to switch to the incumbent’s Internet service; and forgiveness of old debt owed by subscribers to the incumbent – to drive these small competitors out of the market entirely. It is also unclear whether the neighboring community’s rates are being increased to offset the discounted price offered in the competitive neighborhood.

Although the reasons may not be clear, the results are: cable prices go down when there is wireline competition; cable prices do not go down when there is no wireline competition or when there is competition only from non-wireline providers. Any legislative attempt to reduce cable rates should focus on encouraging wireline competition. Any legislative reform of programming requirements should examine how cable operators may be using control of programming to discourage competition before considering how to give cable operators more control over programming.

 

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