Government's Role in the Private Sector: The Case against Reregulating Cable Television

Article excerpt

The cable television industry has become one of the most controversial services in the U.S. economy. Consumers typically have two basic complaints about this service: poor quality and high rates. During the 1980s' Reagan era, cable television was among many industries that were deregulated. It has been argued that during deregulation consumer welfare was not maximized and that the industry enjoyed an unfair advantage. In response, Congress has moved toward reregulating the industry. The central issue in this move is what the effects of reregulation will be on both the consumer and the cable television industry. Some argue that reregulation would actually raise the subscription cost to the consumer and do nothing to stop the virtual monopoly that exists. Proponents of reregulation obviously disagree, leaving one to wonder what will actually happen in the future with regard to both price and service. This paper argues that reregulation is not the answer and that greater competition must be encouraged in the cable television industry. After a brief synopsis of the current U.S. cable industry, the recent record of regulation and deregulation will be summarized. Then it will be argued that greater competition is the solution to improving cable television services. This will be followed by some discussion of how greater competition may be encouraged, and why eventually it is unavoidable.

The Cable Industry

Currently, there are more than 11,000 cable systems in the U.S. (Corn-Revere, 81). Nearly 95% of households have access and about 57% subscribe (Benoit, 37). The service varies widely, with an average of about 36 channels provided, but with the potential to double within the next few years. The industry was deregulated in 1984; and according to lawmakers, complaints by consumers have led them to reregulate the industry. But according to a survey of readers conducted by Consumer Reports, before the push toward reregulation, three-quarters of those polled said they were either very or fairly satisfied wit their cable systems (Coy, 58). Nevertheless, consumers also stated by a three to one margin that they would like to see "another cable company come in and compete" in their area. By the same margin, however, readers agreed that cable is a "utility" and "should be regulated accordingly" (Consumer Reports, 584).

At this point in time, there is little competition for most of the existing cable systems, besides broadcast television. Cable has had no problem conquering "free" broadcast television, for obvious reasons-the main one being the sheer number of choices available. Only about 50 cable systems operate with traditional head-to-head competition. Rates between competing cable systems are often as much as 20 percent lower than for those in communities with only one cable system, and per channel charges can be as much as 50 percent lower. The average number of channels in such communities is the same (about 36), but local authorities typically view the wiring of communities for two cable systems as impractical and grant exclusive contracts to only one system, effectively snuffing out competition before it can start to do its work of improved efficiency. In addition, these cable systems also often buy out the competition or wage court battles to retain exclusive franchises. In 1990, nearly 50% of the cable television market was controlled by the four largest cable corporations. Only once between 1984 (deregulation) and September 1991 has a city been able to oust its cable system (Consumer Reports, 583-584). It is important to note here that there is little evidence to support the claim by the cable industry that cable television is a natural monopoly, meaning that having one system is cheaper to build and operate than having competing systems serving the same area (Evans, 26).

At the same time, however, we observe that cable rates have risen dramatically. Between 1986 and 1991, the government's cable television index rose 53. …