TV competition could save consumers big bucks

Study says Californians could save $1 billion annually on TV service when phone companies are allowed to compete.

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 The phone companies argue that outdated laws that require them to obtain franchise agreements from individual cities and towns are slowing their deployments.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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