April 17, 2006 4:09 PM PDT

TV competition could save consumers big bucks

A correction was made to this story. Read below for details.
Competition in the cable TV market from phone companies could save consumers big bucks, according to a new study released Monday by an economist at the University of California at Berkeley.

Yale Braunstein, professor in the School of Information at UC Berkeley, analyzed data from the U.S. Government Accountability Office and the Federal Communications Commission and calculated that cable television subscription prices would drop 15 percent to 22 percent in California if cable companies competed directly with another wireline paid-TV provider, such as a telephone company.

Braunstein's report, which was commissioned and paid for by AT&T, is one of the first studies to quantify how much consumers could save if phone companies competed directly against cable operators in the video market.

AT&T and Verizon Communications have already begun offering TV service in certain parts of the country.

If telephone companies compete on a wider scale throughout California, Braunstein anticipates average prices falling about $56.40 per month to between $43.99 and $47.94 per month. With more than 60 percent of California's 11.5 million households signed up for cable service, that's a savings of between $690 million and $1 billion, he said.

Despite the entrance of satellite service in the 1990s, cable still dominates the paid television market not only in California but throughout the U.S. Without much competition in the market, prices have soared. According to a report published by the Federal Communications Commission last year, cable rates increased 7.8 percent in the five years before the end of 2004.

"Over the last five years, cable rate increases have far outpaced inflation and the Consumer Price Index," Braunstein said. "But when faced with competitive television providers, cable rates have actually gone down in many markets while services increase."

Other parts of the country could see savings similar to those found in California, Braunstein said. But the majority of consumers won't see the benefits of competition overnight. The phone companies argue that outdated laws that require them to obtain franchise agreements from individual cities and towns are slowing their deployments.

AT&T and Verizon are currently lobbying in state houses and on Capitol Hill to change these laws making it easier and faster for them to obtain franchise agreements. Texas, Virginia and most recently Kansas have passed legislation allowing new entrants to get a statewide franchise.

"There is nothing wrong with phone companies paying franchise fees," said Braunstein. "But they shouldn't be used as some kind of barrier to keep competition out of a market. The process made sense 20 or 30 years ago when cable TV service was new. But now that the infrastructure is deployed in these communities, the whole process has lost reasonableness."

Cable companies argue that phone companies should not be given special treatment regarding franchise requirements.

 

Correction: This story incorrectly suggested that Yale Braunstein's study found cable prices dropped in California markets where cable providers face competition from another wireline provider. Braunstein calculated that subscription prices would drop if such competition existed.

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7 comments

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Well DUH!
'Nuff said.
Posted by zizzybaloobah (218 comments )
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Isn't this what Enron said?
Sure, sure, there'll be big savings, balh, blah, blah. Look, they want in these markets so they can make huge profits, not to save consumers money. And the telecom companies are great at getting markets configured in their favor.

These companies are terrified of free markets.
Posted by ordaj (338 comments )
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Can We Trust The New AT&T
The history of the telephone industry is fraught with falsehoods, slamming, stonewalling and outright fraud. I am in favor of New Competition, but the management of the New
AT&T should be required to take lie tests.

But alas they only misstate when their moths are moving.
Posted by georgev (4 comments )
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AT&T Spending Gobs On Advertsing
In the few short months since AT&T has reconstituted itself, we are bombarded with more AT&T ads on TV, radio, Internet, and print from them than even McDonald's. How are they going to pay for these massive media blitzs? Why by raising rates of course.

What the esteemed Berkeley professor did not tell you is that in order to get these sub-cable TV rates you will have to subscribe to a boatload of other AT&T products: basic phone service (for DSL), DSL, and cellular to name a few. They are not content to sell you just one service, they want the whole enchilada. Of course, once you have succumbed to their pitch, just try unbundling. Sorry, but you signed a 3 year term commitment. If still want to unbundle, after paying all the penalty fees, then everything is going to break because it is all tied together with scotch tape.
Posted by maxwis (141 comments )
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And the cable companies are better?
I tried to get unbundled broadband from Comcast and was told there would be an additional monthly surcharge. It was $5 more than the cost of basic cable so I ended up with the cable/broadband bundle and have to pay $60 a month for broadband access.

There is no competition for either in this area, so Comcast can do as they please.
Posted by freemarket--2008 (5058 comments )
Link Flag
Surprise!
I can appreciate the study, but I hardly think anyone with half a brain needs to conduct one to know that competition empowers consumers.

<a class="jive-link-external" href="http://channelchanger.typepad.com/my_weblog/2006/04/study_competiti.html" target="_newWindow">http://channelchanger.typepad.com/my_weblog/2006/04/study_competiti.html</a>
Posted by Hynes (8 comments )
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History shows otherwise
The history and structure of the telecom industry would suggest that any savings will be short.

Firstly, you have a government in the hands of pro-business anti-government radicals who don't believe in limits on big business. They don't believe in using anti-trust laws to foster competition; notice how the reconstitution of ATT is actually a violation of the original court order that busted up the bell system back in the late '70's? Sooner or later phone and cable companies will attempt to merge, and, in the present climate, nobody will stop them.

Secondly, when you look at the technical side you see a limited number of wires hanging off those telephone poles: expect it to be a zero-sum game as phone/cable/internet providers charge the opposition for access to their hardware or have to pay for their own. If your phone bill goes up to get the cable bill to go down, you haven't gotten anywhere.

Thirdly, it's axiomatic that the companies will siphon savings to the shareholders before the customers. Customers will only see price reductions if the company is making windfall profits. True price reduction is a sign that the company is bankrupt and ready to fold...
Posted by Razzl (1318 comments )
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