Monday, August 09, 2004

Free Enterprise? How Cox deals with Competition: Let the State Tax ‘em

Cox, most noticeably of the two main fiber antagonists in the Lafayette battle, has chosen to try to cast fiber issue of one of ‘free enterprise’ versus ‘government.’ That’s pretty misleading, IMHO the real issue is rather a matter of choosing between private and public provision of a natural monopoly. Do we want a large private corporation or a local public utility controlling the natural monopoly that any fiber network will inevitably be?

But with the ideology of a radical, simplistic “free enterprise” position (all private good, all public bad) so prevalent, Cox seems credible when they claim to merely be for preventing “Government” from competing with “Private Enterprise.” And since the charge would be more or less true if it were really the case that “free enterprise” rather than monopoly power were at stake all they have to do to win this point is to keep up the illusion that their monopoly power is not at the heart of our local issue.

So Cox’s public presentation of itself in Lafayette is one of a pious champion of business against the overbearing, grasping state. It’s a nice role to play. But it just isn’t true.

A good example of this is that Cox has fought a losing battle for years in Arizona to force the state to impose taxes on competitors in order to force them to raise their rates. Government interference with free enterprise is just fine if it works to Cox’s advantage. In fact Cox is willing to demand it.

Asking for Taxes

What taxes? Cox has been losing cable customers in recent years (while taking in more revenue) and mainly losing them to satellite providers whose newer satellite technology evades Cox’s monopoly on local coax networks. One advantage of this newer technology is that it doesn’t lead to local franchise arrangements with local governments in which cable companies like Cox contract with the local government to pay the government for the use of its right-of-ways and for use and maintenance of the poles on which the cable runs. Satellite TV is more efficient than cable, at least in that way, and that, part of the more general fact that cable has to maintain a much larger on the ground infrastructure gives satellite a competitive opening.

So Cox is faced with a classic free enterprise choice: either continue to bleed customers to price-efficient Satellite or lower its’ rates and compete on price.

What does Cox do? Cox chooses to…try and raise their competitors’ rates.

Cox wants the legislature in Arizona to step in at the state level and tax the Satellite companies for costs they do not legitimately incur at the local level.
That’s right, Cox has lobbied the legislature to impose state taxes on its competition, but not on Cox, so that their competition will have to charge more to their customers. That takes real gall. I almost admire it. There is a Louisiana flavor to the exuberant, unashamed attempt to make government serve private corporate interests at the expense of its citizens.

But it doesn’t end there.

Demanding Taxes on your Competition

In a move that seems to have shocked even its allies with its heavy-handedness Cox has demanded that candidates sign a pledge to support “tax equity” before Cox will give them money to run for election. That’s sort of like a promissory note. The politician signs a pledge to provide a vote when the debt is called and Cox pays the politician. Pretty direct. Not pretty.

And it does throw doubt on the idea that Cox is simply promoting anything most of us would recognize as “free enterprise.” This is monopoly behavior.

Take home

Taking the message home to Lafayette, situations like this should help us see that what is happening here in Lafayette is simply the way that monopolies react when faced with competitive disadvantage. When their natural monopoly—born of their ownership of the only wired network that can carry the service—is no longer enough to eliminate real competitors monopolies turn to government to keep from losing in free competition. Certainly Cox does.

The Arizona situation is analogous to our own: LUS is suggesting that fiber technology is superior to coaxial cable in that its use would let LUS provide services similar to Cox’s for less money. Cox and BellSouth don’t want to lose customers. And they don’t want to lower their rates to compete. So Cox endorsed a BellSouth promoted State law that imposed a special “tax” on local government that Cox and BellSouth don’t have to pay.

What taxes? What was outrageous in Arizona is both outrageous and in that fine, special, Louisiana way, absurdist. Its outrageous to ask the state to pass a special tax on your competition because you have to pay for services they don’t need; it is outrageous to get the state to do so with the open intent of raising costs for your opponents so that they have to charge the public more; it is outrageous to admit you do so so you can compete more profitably. But it is absurd to ask the local municipalities who own the right of way, who built the poles and maintain them to pay as if it were having to buy access from itself. Who gets paid? Local government. Who loses? Only the customer. You pay more for what you buy. We get to watch the spectacle of the Louisiana “Public Service” Commission being told by our state legislature to make sure that Lafayette charges its citizens enough more than it would otherwise in order to cover the cost of something that it already paid for. It is absurdist. It is surreal. It is wrong.

Here is what is wrong with the PR image of Cox as a partisan of “free enterprise:” They act like monopolists.

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