February 23, 2006

February 23, 2006 | Commentary on Internet And Technology

Choice and competition: Ten years later, the battle moves to cable TV

Ten years ago this week, President Clinton signed the Telecommunications Act of 1996, completely rewriting the nation's telecom laws. To mark the anniversary, the Federal Communications Commission meets this week not in D.C. or some high-tech hub city but in the smallish Dallas suburb of Keller, Texas.

It's an appropriate location. In September, Keller residents became the first in the nation to experience a new form of cable TV competition. That's when Verizon launched its new advanced television service there. The Verizon offering is now available in several other cities.

With AT&T and others planning to join the fray, consumers nationwide could soon enjoy a fierce competition between the former telephone monopolies and the former cable monopolies. But only if local regulators don't stop it from happening.

In passing the '96 Telecommunications Act, lawmakers promised Americans more competition and innovation in telecommunications. Sure enough, that has come to pass. The rub is that these benefits have had little to do with the act.

For years, lobbyists and regulators debated and litigated over provisions in the act meant to jump-start telephone competition by requiring existing providers to lease their infrastructure to potential competitors. Though a bonanza for lawyers, these forced-sharing rules did little for consumers and even hurt competition by discouraging firms from investing in their own facilities.

Meanwhile, Internet and wireless technologies - both virtually ignored by the act - flourished. Despite, or perhaps because of, this "neglect," these two services have grown beyond all expectations. These services have also been highly competitive - not only providing competition in Internet and wireless markets but also creating competition for traditional wired phone service.

While this communications revolution is still playing out, another is beginning for video communications. Digital technologies have created new ways to deliver cable TV using existing phone lines. Verizon is using fiber-optic lines to deliver digital video. AT&T has developed an Internet-based system. Both allow for a bevy of new features - ranging from expanded video on demand to caller-ID messages.

The services promise to jolt cable providers with new competition, if Keller is any guide. Verizon has already earned 20 percent of the market. And prices have dropped. The incumbent cable provider, Charter Communications, announced a price cut shortly after Verizon's launch. A study by Criterion Economics projects that new entrants could reduce cable rates more than 15 percent nationwide, saving consumers more than $5 billion per year.

The change involves more than economics, though. Competition may also give viewers more power to choose their own content. Responding to concerns by parents and others over what they consider inappropriate content on cable TV, many policymakers have called on cable companies to let consumers purchase channels on a one-at-a-time, or "à la carte," basis. Traditional cable firms, however, say that today's technology and economics won't allow this.

The new competitors might change this equation. By its nature, their digital technology makes individual consumer choice easier, and the added competition may give all providers an incentive to offer more choice.

In fact, choice already seems to be part of AT&T's marketing strategy. As one spokesman explained: "Our goal is to provide more choices to our customers when they want it, in the way they want it."

A number of hurdles, however, have to be overcome before all Americans can enjoy the competition now at play in Keller. Not least, any new competitor must receive a franchise from local cable regulators before offering service. There are some 8,000 local regulators, meaning nationwide service may be delayed for years.

And many local regulators want to saddle the new competitors with mandates - ranging from build-out schedules to franchise taxes to coverage of city council meetings - as a condition of entry. Long imposed on traditional cable firms, such mandates might have made sense in the days of monopoly service, but in a competitive environment they are unnecessary and harmful.

Regulatory barriers should be reduced so that consumers may take advantage of the new competition. To this end, several states are considering shifting franchising powers to the state level to expedite matters. Texas has already done so. Several reform bills are also pending in Congress. Among them, S. 1504 by Sen. John Ensign (R-Nev.) would eliminate, and S. 2113 by Sen. Jim DeMint (R-S.C.) would strictly limit, franchising authority.

Whether because of - or despite - the Telecommunications Act, American consumers now enjoy the benefits of competition in telecommunications. But the choice revolution is not over. And, unless regulators prevent it, cable TV may be the next battlefield.

James Gattuso is a research fellow in regulatory policy at The  Heritage Foundation, a Washington-based public policy research institute.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

First appeared on The Hill