Feb. 13 was a day of seismic change in the telecommunications industry, as the nation’s largest cable provider, Comcast, reached an agreement to buy the second-largest, Time Warner Cable, in a $45.2 billion deal. The millions of Americans who live in a cable-monopoly community — where only one cable company’s services are available — may groan at this news, which on the surface may seem to only further reduce competition in the pay-television industry. But the big cable providers are hardly the root cause of cable monopolies, and the fix will remain until local governments decide to embrace competition.
Cable companies may hold local monopolies, but local governments and public utility commissions dictate this lack of competition through sweetheart deals designed to line the pockets of the city at the consumer’s expense. Although we live in an increasingly wireless society, cable and Internet service is still heavily dependent on cable wires, which have to crisscross over and under public and private lands. With few exceptions, governments own the “right-of-way” to this airspace, and control which cable providers can build a local network.
When government decides who can and can’t compete in a market, it’s free to set whatever fees it wishes for right-of-way use and institute whatever regulatory barriers it wants. This has naturally created a system of kickbacks, through which cable companies agree to pay absurd user fees in exchange for special treatment, with the government agency using its regulatory powers to prevent competitors from entering the market. Thus, consumers are generally left with the choice of one cable provider, which is free to charge whatever rates it chooses without fear of losing its market share to a low-cost competitor.
These government-driven monopolies render the Comcast-Time Warner merger nearly irrelevant to consumers, as the two telecom giants do not compete in a single U.S. zip code. In fact, despite being the nation’s largest cable provider, Comcast does not operate in either New York City or Los Angeles, both of which have longstanding deals in place with Time Warner. This startling lack of competition is unimaginable in most any other sector of the economy.
Yet however limited cable service choices may be, customers have a plethora of other options for receiving the same television programming. Satellite providers like DirecTV and Dish Network have long been alternatives to cable, and newer Internet services like Hulu Plus, Netflix, and Amazon Prime now provide many of the same programs that cable television does.
Comcast’s acquisition of Time Warner, therefore, isn’t going to change the options (or lack thereof) available to consumers, but will likely generate some fringe benefits that could lower costs. The merged company expects to save $1.5 billion in operating costs by consolidating broadband infrastructure, which could be passed on to subscribers. Time Warner customers will also benefit from Comcast’s more advanced “cloud box” technology and higher broadband speed.
Yet whatever minor perks consumers gain from this multibillion-dollar acquisition, it will be the same old song and dance in the cable industry until localities drop the kickback scheme in favor of open access policies, which would provide inexpensive access to the presently safeguarded rights-of-way. These policies — already in place in cable markets like Kansas City and Austin — embrace broadband competition instead of scorning it, and allow consumers, not government, to decide which cable company to subscribe to. And while the current system favors the technological status quo, open access would encourage nontraditional providers, like AT&T U-verse and Google Fiber, to build new broadband networks and bring the latest technologies to town.
Comcast and Time Warner’s merger may reek of monopoly, but criticism of the deal itself for stifling competition is unfair. The problems in the cable market are endemic and stem from local government cronyism. Consumers who want to see options for cable and Internet service should not turn their anger at Comcast’s or Time Warner’s corporate offices, but rather at their own city hall.
Erik Telford is senior vice president of the Franklin Center for Government and Public Integrity.