Cable television dominates the market for delivery of video programming. While satellite television and other cable companies offer services in some of the same markets, there is substantial evidence of a lack of effective competition with cable television in Texas for the delivery of video programming. The way you can tell is quite simple—prices go up, quality doesn’t, and people keep buying it.
One way to fix this market shortcoming is to implement public policy facilitating the provision of video services by telecommunications companies. These firms have wire connections throughout the state and have the technical capability to provide video (much as cable operators are now able to provide telephone service). The result would be substantial investment in the state, expanded operations, and notable consumer savings. All of these factors lead to a significant economic stimulus, as well as incentives for innovation, improved quality and services, and more flexible product offerings.
My firm was asked to quantify the effect of increased competition in video programming in Texas. The study reveals that policies to support increased market entry and participation by telecommunications firms will generate substantial investment; more than $1.8 billion in ongoing annual spending; almost 12,000 permanent jobs; and better service, quality, and consumer choice.
Competitive markets create efficiency and enhanced individual welfare. Just look at trucking, airlines, natural gas, telecom, or any of the other markets that once were regulated and now are open to competition. Because the market for video programming is not competitive, several problems arise. The market power of cable television operators is evidenced by their ability to raise prices faster than general inflation while offering relatively poor service. Only the presence of another wireline competitor appears to effectively constrain this capacity. Unfortunately, wireline competition is not widespread, and many markets in the US and Texas have no practical choice for video programming. While satellite offers an alternative for some subscribers, functional differences between satellite and cable reduce satellite television’s ability to compete effectively. Furthermore, satellite television appears to be more of a niche product that is targeted to rural areas and high-end users of sports channels.
The existing market structure in the cable television industry provides a significant competitive advantage for cable operators. Cable operators have the unique ability to provide a bundled package of video, high-speed Internet, and telephone services from one provider through existing technology that is readily available and familiar to most households. Furthermore, the large incumbent cable operators are vertically integrated, with ownership interests in many of the most popular cable television networks (in part or whole). While cable television market penetration has declined slightly in the past few years, the industry continues to prosper, with revenues and profits increasing yearly. The cable television industry is also poised to reap significant profits without adding new subscribers from the array of digital services now offered (digital cable and telephone and digital high-speed Internet).
The ability of cable companies to exploit this market power to the detriment of consumers can only be meaningfully limited by facilitating the entry of other wireline providers. At present, a cumbersome and inefficient market entry mechanism precludes substantial and rapid investment by other wireline (primarily telecommunications) providers, particularly in Texas. Streamlining this process and introducing effective competition yields numerous economic benefits as noted above.
Competition is the hallmark of the American economy and the ultimate source of efficiency and consumer wellbeing. Public policy which promotes market entry is beneficial to the economy in multiple ways. Nowhere is such an enlightened approach more needed than in video programming services. Our analysis reveals that cable telecommunications operations face little or no effective competition, and are able to consistently raise prices despite offering poor service performance (as measured by independent surveys) and limited consumer choice.
In addition to the enhancement of consumer choices, encouraging penetration by telecommunications providers would also bring a substantial stimulus to business activity and fiscal revenues. Moreover, it would accelerate broadband deployment and infrastructure investment, thus enhancing the prospects for economic development. In short, promoting competition in video programming services is a significant opportunity for Texas to enhance its role as a viable participant in the technological economy of the future, while failure to do so will limit potential prosperity.