July 22, 1997

CABLE COMPETITION IS NOT A LEVEL PLAYING FIELD

by Andy Oram
American Reporter Correspondent

CAMBRIDGE, MASS.—Since most Americans get their news and much of their culture from television, we should be concerned with the diversity of the industries delivering that medium. Like the telephone industry, cable television was supposed to be opened to competition by the 1996 Telecommunications Act. But in both cases, breaking monopolies has proven a daunting task—and established companies have gone to great lengths to make it legally harder.

Local phone companies effectively put a stop to competition in their monopoly markets by going to court to challenge the FCC’s regulations for interconnection (the hooking of competitors’ equipment and networks to those of incumbent companies). The incumbents claimed simply that states should make rules about interconnection (notably pricing). But all observers agreed that the court ruling against the FCC threw the standards for interconnection up in the air, and made it much harder for new companies to enter the local market for years to come.

Cable companies’ actions are less visible, but in state after state around the country, legislatures are passing “level playing field” laws that constrain new entrants. Eleven states have these laws by now (Illinois is considering a repeal) and one is currently in the Massachusetts legislature.

Competition in cable can come either from a new company using the same technology or from someone with an Open Video System service, a new category of company that received special treatment in the Telecommunications Act. OVS offers voice, video, and data (such as Internet access) over a single wire. While the OVS category was designed to help phone companies enter the cable market, they haven’t taken up the challenge. Instead, a variety of smaller companies are trying to gain entry.

OVS was originally expected to be exploited by phone companies to get into the cable business, but they’ve been slow to pick it up. Instead, new companies have taken up the OVS challenge, such as RCN in the Boston area (although that particularly company is switching over to traditional cable status).

OVS providers are supposed not to favor particular programs over others they carry, offer the same public-educational-government access as cable systems, pay comparable fees as cable operators, and so forth.

New companies shouldn’t scare the established ones. Enormous sums have to be invested to lay new wires. And the new entrant has to advertise heavily just to let customers know it has arrived, let alone woo them away from the company they’ve relied on for years. But the state of pricing and service in the cable industry apparently leaves plenty of room for attractive offers from new entrants.

Enter the level playing field law. It typically stipulates that any new cable franchiser (not OVS) has to meet the same “terms and conditions” as the incumbent. Applied rigidly, that would mean that if the original cable company built a studio in which local public-interest programs could be taped, the new company would have to build a second studio in the same town—even if the town needed only one! Luckily, judges seem to be rejecting such one-to-one interpretations; they say the terms and conditions can be treated as a total package.

Are level playing field laws fair? It depends on whether you take a historical view. Current cable monopolies signed contracts in a different era. They benefited from a captive customer base. Furthermore, the needs of the community are different now. Two years ago, for instance, few people cared about the Internet; now every community wants it cheap.

Suppose you hired a carpenter to work on your house, on the conditions that he hauled away old materials and paints the unfinished wood when done. If you hire another carpenter to do another job, why should you be forced to impose the same condition? Two different jobs have two different needs. And you should have the right to make whatever terms you want; it’s up to you to determine how to get the best deal you can.

The Massachusetts legislature is considering a compromise that relieves incumbent companies near of some obligations if they’re near the beginnings of their contracts (which tend to last 10 years) and a competitor enters; this should satisfy company fears that they have to pay out large sums without seeing commensurate returns.

Fair or not, a level playing field law has a clear goal and effect: it eliminates competition. In Massachusetts, town and city officials hate it. They want the freedom to negotiate whatever terms they want, and there’s no good reason for a state legislature to take that away. Laws also tend to lead to lawsuits. What’s scary to city officials is that cable companies don’t just tie up each other’s lawyers; they also sue the cities.

The state of competition in the cable industry is one more indication that the Telecommunications Act is not having the effect it promised to have. The succession of mergers in communications industries was supposed to be balanced by increased competition among the conglomerates that emerged. But we’re getting mergers without competition. It doesn’t help when companies manipulate the legislative and regulatory process to preserve their fiefdoms.

Public interest programmers, operating on shoestring budgets to bring information to their constituencies, fear the shake-ups that come with competition. Many were funded by incumbent companies, and even work for them. Programmers may find themselves in a cruel squeeze: new companies could shun them because they’re associated with a competitor, while their original patrons may ditch them when competition arises. In an Illinois case, public access became a hostage of the competition controversy when the incumbent withdrew funding. Legislatures should spend their time worrying about this endangered species, not the bottom lines of the cable companies.


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