Out of Control

A series of studies are being published that point to measurements that place prices 15 percent lower in markets where there is cable competition.

The most extensive of these studies, Cable TV Franchises as a Barrier to Competition, by Thomas W. Hazlett, applies various market elasticity formulas, as well as documented trends and concludes, “Were head-to-head wireline video rivalry, now offered to just under five percent of U.S. households, to extend nationwide, annual benefits to consumers are estimated to approximate $9 billion, with overall economic welfare increasing about $3 billion per year.”

Similar studies are applying models on a more localized basis. Yale M. Braunstein, a professor at the School of Information at the University of California at Berkeley, in a paper released this week, cites FCC measurements of competitive and non-competitive cable markets that found subscripition rates for basic and expanded basic services were on average 15.7 percent lower in the competitive group. Using the data as a baseline, Braunstein predicts California consumers will see an annual savings ranging from $690 million to $1 billion in a competitive services environment.

Finally a new report, “Cutting the Cord,” from the Pacific Research Institute by Sonia Arrison and Vince Vasquez also cites the FCC data, as well as an example of the immediate price-cutting that occurs when new entrants are allowed in.

In the summer of 2005, Verizon introduced its FiOS TV service in Keller [Tex.], offering 180 video and music channels for $43.95 a month, or a 35-channel plan for $12.95 a month. It also offered three tiers of fast Internet access over fiber for $34.95 to $199.95. In response, the local cable company, Charter Communications, dropped its prices, offering a package of 240 channels and fast Internet service for $50 a month. That amounts to big savings for the people of Keller, compared to the hefty $68.99 Charter once charged for a TV package alone.