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March 29, 2006

Cheaper cable and controlled content

By

Cable TV is now at the center of two simmering controversies. The first concerns content: How can parents protect their kids from inappropriate TV programming? The second involves competition: what to do about local rules that impede telephone companies from competing with existing cable TV providers.

These two policy debates have largely been kept separate from each other, not least among conservatives. Pro-family groups focus on the content debate, rarely mentioning competition, while pro-market groups push for competition, without reference to the content debate. However, like so much else in today's converging telecommunications world, the controversies are linked.

Competition may be good family policy as well as good economic policy.

TV programming has been a front-burner issue since Janet Jackson's wardrobe "malfunctioned" at the 2004 Super Bowl. However, most TV programming today is on cable, where the FCC (for good constitutional and policy reasons) has no authority to impose fines. The debate has now turned to the question of how best to help parents and other cable customers exercise more control over what appears on their TV sets.

Toward this end, many have urged cable companies to let cable consumers purchase channels individually ("a la carte"), rather than in the pre-selected "tiers" offered by most providers today. Most cable firms have resisted this, arguing that a la carte pricing would reduce advertising revenue (since the potential audience for each channel would be smaller), resulting in higher rates and less program variety. An FCC study last year strongly supported this contention. However, after a change of leadership, the FCC last month reversed itself and issued a contrary study concluding that a la carte would work. Which is right?

The answer is unclear. What is clear is that politicians and regulators are poorly positioned to find out. Whether a la carte pricing would work is a question much better answered in the marketplace -- with rival firms testing alternative ways to serve consumers.

This is where the competition debate comes in. In recent months, Verizon and AT&T have launched video service in several cities, using advanced digital technologies that let them deliver TV signals over existing phone lines. The new competition promises to jolt traditional cable providers, presenting a challenge unlike any they have faced before.

However, under current law, new cable competitors must receive a franchise from local regulators before offering service. There are some 8,000 local cable authorities, meaning nationwide service could be delayed for years. So far, the debate over competition has focused on the economic effects, primarily reduced cable rates. A study by Criterion Economics estimates that, if this kind of competitive pressure existed everywhere, rates would drop 15 percent nationwide, saving consumers more than $5 billion.

But new competitors could also make it easier for parents to control the content of their TV programming. By its nature, the digital technology used by telephone companies makes it easier for viewers to decide what they see and when they see programming. And, as newcomers to the market, the telephone companies are unencumbered by past business practices, making pro-choice policies easier to implement. Although neither firm now offers a la carte channel selection, AT&T has said it would like to offer its customers that option. Moreover, both Verizon and AT&T embrace "choice" as an integral part of their marketing strategies -- providing a way to differentiate themselves from the existing cable providers.

Next week, the House Commerce Committee may consider a bill by Chairman Joe Barton, Texas Republican, to speed the advent of cable competition by allowing competitors to obtain nationwide franchises instead of local ones. That's a welcome step forward. However, as now written, that legislation also adds more regulation, most notably provisions to give the FCC new power to regulate Internet providers.

It would be far better simply to eliminate franchise requirements cleanly, and across the board, without additional new regulations. Such a step would score a rare policy twofer: helping American families save money on their cable bills, while at the same time empowering them to control cable content within their own homes.

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

First appeared in the Washington Times

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