All that is to say: these guys are on your side. They don't have to toady to advertisers and aren't a commercial product in some large media conglomerate's holdings that might find it "improper" to criticize another product owned by its masters. They are fearless and are solely in the business of watching out for the consumer's interests; your interests.
So when the Consumers Union goes on a tear about a consumer issue, it's something worth listening to. And they've gone on a tear about your cable bill. Want to know why your cable bill is so high? The Consumers Union, in a report, CABLE MERGERS, MONOPOLY POWER AND PRICE INCREASES, tells you in no uncertain terms why: The cable companies are a local monopoly and they charge monopoly rents. (In a sense, it's not their fault. They are natural monopolies--but the effect it has on your pocketbook is the same.)
What you need to know:
Cable operators are blaming the rate increases on a number of things in an effort to hide the underlying cause – the greed of the nation’s most persistent monopolists in the midst of a costly and anti-consumer merger wave. In keeping with justifications used for previous price hikes, they are blaming programming costs and capital investments needed to make new services available. Those claims simply do not withstand scrutiny...It's not programming costs. Don't believe that your rate increases are attributable to ESPN and HBO...
If costs were really the cause of rising prices, then the cable industries’ operating margins -– the difference between its revenues and costs -- would not be rising. The facts are just the opposite. Operating margins have been increasing dramatically since 1997 (see Exhibit 2)...Besides, maybe high-priced channels don't really bother the cable companies all that much:
The ability of cable operators to raise rates and increase revenues, even with rising programming costs, stems from the market power they have at the point of sale. They would not be able to raise prices and pass program price increases through if they did not have monopoly power.
One can also question the vigor with which cable operators resist program cost increases. Approximately 40 percent of the top channels (measured by subscription or prime time ratings), which command the highest prices, are owned in whole or in part by cable operators or companies that have large ownership stakes in cable companies...In other words, for a substantial part of the industry, rising programming prices are just a transfer from one subdivision of the cable company to another, which comes out of the consumer’s pocket.You're getting this, right? Even the cable company's best excuse, rising prices, is a dodge. The cable companies own almost half of the expensive channels they claim are forcing them to raise your prices.
But you will, with some fairness, say: cable companies have poured huge amounts of money into networks. True, but they did it to develop new services for which they fully intended to charge. And that is working:
Another claim by cable operators is that they need the increased profit margins to pay for the system upgrades that are being put in place. Again, by looking at revenues we find that this argument does not stand up.Besides, infrastructure investment has not been where they've incurred the greatest expense. What they are really using your ratepayer dollars for is a buying each other out. That huge expense is something the ratepayer ends up paying--without receiving anything tangible in return.
The digital upgrades are intended to make a new range of services available. By selling these services, the upgrades pay for themselves (see Exhibit 4). If we compare the build up of capital expenditures (a large part of which is claimed as a cost of system upgrades) we observe that revenues from services that are made possible by these upgrades have increased very rapidly. The cable operators do not need to and should not be raising basic cable rates to pay for this upgrade. They would not be able to raise basic rates to cross-subsidize advanced services if they did not have monopoly power.
While the cable industry has certainly increased capital expenditures to upgrade its plants, it has actually sunk a lot more capital into another activity – mergers and acquisitions. It is the outrageous prices that have been paid to buy each other out and consolidate the industry that is helping to drive the rate increases (see Exhibit 5).Not surprisingly competition is the solution, as it is for most American businesses.
If all cable companies faced meaningful competition – as those serving about five per cent of consumers do, through head-to-head competition with other cable companies -- the cable industry could not pay inflated prices (and incur excess debt) through the merger/acquisition process, and could not pass along these excess costs to their customers. The General Accounting Office recently found that, in communities where there are two cable companies (and two satellite providers) cable prices are on average 17 per cent lower for comparable services than in communities with two satellite providers and just one cable company.Notice, please, that real, wireline competition makes everyone's cable cheaper. As studies like the GAO's regularly document that satellite providers make no such difference in prices—evidence, should anyone care to admit it, that satellite and cable are not participating in the same market. Price competition is at the heart of the definition of markets. No price dependency = different markets.
On the other hand, competition with a fiber optic-based "Broadband Service Provider" (BSP) is demonstrably competing in the same market as the cable companies. The GAO is regularly commisioned by Congress to study whether or not a law is having the intended effect. A case study of one such law (The 1996 Telecom Act) shows:
The rates for telecommunications services were generally lower in the 6 markets with BSPs than in the 6 markets without a BSP. For example, expanded basic cable television rates were 15 to 41 percent lower in 5 of the 6 markets with a BSP when compared with their matched market.That's even better than the 17 percent from the head-to-head cable competition cited in the first study. The added competitive advantage of fiber generally drives prices even lower.
As is usual in the American economic system, competition is the key.
And LUS promises to provide fiber-based competition. The evidence is that we will all benefit—customers of LUS and customers of Cox alike.