Man does not live by bread alone, said Jesus of Nazareth, and many Americans agree: Cable TV, for example, is also a basic necessity. So there is widespread alarm and resentment that come April 1, cable operators will be liberated from federal price regulations, leaving them free to charge whatever the market will bear. Consumer advocates say the industry soon will be turning customers upside down to shake every nickel out of their pockets.
Actually, the critics report, the gouging is well under way. Since the process of deregulation began in 1996, prices allegedly have jumped by 22 percent, and Consumers Union says they continue to rise at three to four times the rate of inflation. “This law has been an abysmal failure to date,” it says. “We may now be facing the worst of all worlds, which is an unregulated monopoly,” laments Senate Commerce Committee Chairman John McCain (R-Ariz.).
When Congress passed the 1996 Telecommunications Act, it assumed that by now, cable would face withering competition from satellite broadcasters and telephone companies offering the same fare from CNN, HBO and the Golf Channel. But the competitors have proven to be competitors only in the sense that this year’s Chicago Bulls are title contenders: The gulf between theoretical possibility and tangible reality is great. So cable providers have been able to raise rates without breaking out in hives from worrying that all their customers will promptly flee to DirecTV.
Everyone except the cable industry agrees that more competition would be good for consumers. But no one is attempting any heroics to bring it about. The laws of nature, for instance, do not dictate that only one cable company may do business within a given area. A handful of cities allow their residents a choice of providers, and lo and behold, their rates are lower. But municipalities have generally shunned that option, maybe because it gives all the power over cable operators to consumers instead of the city council.
Satellite broadcasters would find it easier to make inroads if they were allowed to transmit local broadcast signals, but broadcasters have managed to block that terrifying threat to their advertising revenues. McCain, the stout foe of monopoly, has introduced a bill to ease this policy, but only for a handful of viewers in remote areas–spurning the radical idea of simply letting satellite companies give the customer whatever she is willing to pay for.
Absent full-throttle competition, the assumption among consumer groups and many members of Congress is that the only way to protect TV viewers from pitiless overcharging is to control cable rates. But what seems blindingly obvious turns out to be wrong.
What we learned from the imposition of federal rate controls in 1992 is that while the government can set the price of cable, it can’t possibly assure the content or quality of cable service. Providers can substitute the Home Shopping Channel for C-SPAN, drop some channels altogether, cut back the number of people answering the phones or skimp on maintenance of transmission equipment. With cable operators vastly outnumbering Federal Communications Commission bureaucrats, these money-saving steps are very hard for regulators to prevent or even detect.
They are not so hard for individual consumers to see, though. If the cable industry were overcharging customers, as it was accused of doing until 1992, you would expect the demand for its product to rise once the prices were forced down. In fact, as former FCC economist Thomas Hazlett and law professor Matthew Spitzer documented in their 1997 book, “Public Policy Toward Cable Television,” the price rollback amounted to a cold shower for consumers.
From 1987 to 1992, a period of deregulation, the audience for basic cable programs climbed at the dizzying rate of 18.5 percent per year. As soon as price limits were restored, the growth dropped to 3.4 percent in 1993 and 1994. Instead of unleashing a wave of pent-up demand by viewers who had been cruelly shut out by high prices, the FCC managed to nearly strangle consumer interest.
The implication is unexpected but inescapable: Customers, gouged or not, thought they got a better deal without price regulations than with them. From their buying and viewing decisions, they indicated that they preferred higher quality at higher rates than lower quality at lower rates. Regulated monopoly, in this case, is even worse than unregulated monopoly.
Of course, consumers doubtless would be even happier if they could get higher quality at lower rates. That appealing alchemy can be brought about through genuine competition, but it is not something that federal regulators can accomplish by decree. Until the government is prepared to stop blocking competition, it should face the humbling fact that the best thing it can do about cable rates is nothing.
