Deregulated Beast or Savings?

Thursday, June 8, 2006 | I have a question. If new legislation that would let phone companies buy state franchises for television service is so great for consumers, why are consumer advocates so against it?

When the California Assembly passed Speaker Fabian Nuñez’ AB 2987 bill in a rush 77-0 vote May 31, it was widely praised by its sponsors and telephone companies as a way to give Californians lower prices and more choice in cable television services.

So why do consumer advocates fear that you and I are going to get screwed?

And what does all this have to do with personal finances, which is usually a question of things like retirement plans and credit card debt?

It has to do with what we pay for everyday goods and services and whether or not we’re actually getting them for a reasonable price. The media is already bloated with angst over gas pains at the pump so we won’t even touch that one. Have you tried reading your phone bill to figure out all those fees and surcharges? It’s nearly impossible even for a reasonably intelligent and literate person.

I get chills (not the good kind) every time I pay my bundled cable/phone/Internet bill. Even though I supposedly get a better price on the package than I would if I purchased all these services separately, it doesn’t feel like a good deal when I write out a check for $170 every month. I have a sneaking suspicion that the cable company is just shuffling my supposed savings into another part of the bill where I won’t notice.

So when I hear politicians talking about lower prices for consumers on cable or anything else, my ears perk up because I’m constantly analyzing my communications bill for potential cuts. I’ve determined that will only be possible once we get a la carte pricing, but that’s another legislative battle altogether.

Back to the main question: why do consumer advocates say consumers are going to be consumed by the big companies pushing this legislation forward? Have you seen those ads with all the facts and figures about how much other cities save when a competitive cable environment is created?

AT&T and Verizon have spent millions on television and print ads promoting the bill, which would let them bypass local governments, which traditionally have the right to franchise cable television services.

“Today California consumers are one step closer to having a real choice for their video service which promises to lower prices for everyone,” Ken McNeely, president of AT&T California, said in a prepared statement when AB 2987 passed.

But neither McNeely nor Nuñez have offered up any other information to show that this bill will lead to lower prices beyond one very basic economic theory: more competition equals lower prices.

As theories go this one sounds pretty logical, but it has holes. There are many factors that affect pricing and so many other ways for service providers to give customers incentives beyond just lowering the price. Remember that bundle deal I mentioned before?

The bigger threat to consumers though is a near complete deregulation of the cable television market that the legislation could create, according to consumer groups. Traditional cable television providers are now ardently opposed to AB 2987 because they are already locked into local franchise agreements that have service and performance standards that are not included in the Nuñez bill.

For example, traditional cable providers can’t choose to provide service only in affluent neighborhoods.

The Nuñez bill also prohibits cable providers from discriminating according to income and requires applications to include socioeconomic data from the planned service area. But there’s no bite: It doesn’t say that applications will be rejected if they don’t include poor neighborhoods.

If that is manipulated by companies to allow them to only provide service where to wealthy neighborhoods, only those wealthy residents will benefit from the competition, and existing cable companies – forced to wire the whole city – will be at a stark disadvantage.

So it’s easy to imagine them advocating for an amended version of the bill.

Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, believes traditional cable companies may not be so opposed if the bill is amended to allow them to drop out of existing local franchise agreements in favor of these easier state franchises.

If that happens, consumers may be looking at a deregulated cable market, one Court compares to energy deregulation in California in 1996 when consumers were promised that the open marketplace and competition would lower energy prices. As we all know, they didn’t.

Court says instead of passing the bill at night with little debate, the Assembly should have been asking tough questions like: “What are (the telephone companies) getting out of it?”

Nuñez’ theory that more competition automatically means lower prices is “an article of blind faith,” says Court.

Michael Shames, executive director of the Utility Consumer’s Action Network, or UCAN, in San Diego puts it another way. “When it comes to broadband service we do think promoting competition is good,” says Shames. “The question that this bill raises is at what cost?”

Consumer advocates want cable franchises to remain a local issue because it ensures a certain amount of accountability. The Nuñez bill lays out a gradually increasing scale of penalties from $200 a day up to $3,000 a day for breaching the franchise agreement, but nothing is said about losing the franchise altogether if the company still doesn’t comply. Currently, locally franchised cable companies can lose a franchise if they don’t provide good and equal services to all consumers.

Consumer advocates also want to ensure that localities still get access to public broadcasting as well as the hefty revenues that stream in through franchise fees. The bill says localities would receive franchise fees based on the franchisee’s gross revenues in a particular region. But there’s no mechanism that gives localities real oversight over the industry, which seems to be a goal of AB 2987 supporters.

A separate bill making its way through Congress, would bypass local and state governments by creating a national franchise fee. That bill, H.R. 5252, is being sponsored by Rep. Joe Barton, R-TX.

“Is it good for consumers to have competition? Yes,” says UCAN’s Shames. “Is it good for consumers to have competition that is it not responsive and not accountable? We think not.”

Please contact Catherine Hockmuth directly at cmhockmuth@yahoo.com with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.