Businessweek Archives

More Choice For Cable Tv?


Top of the News

MORE CHOICE FOR CABLE TV?

In most places, griping about cable TV service is a popular pastime. Not in Allentown, Pa., where residents actually send letters of appreciation to their cable company. Rates are below the regional and national averages, channels are plentiful, and the service can't be beat. When Frank Hanzl, a draftsman, moved to a new home in town two weeks ago, he was wired for cable within 24 hours. "I couldn't believe it," he says. "They were terrific."

What's going on in Allentown? This city 35 miles north of Philadelphia is one of a few spots where true competition in cable TV exists. Most cable companies enjoy exclusive franchises from local governments. Allentown residents can choose between two operators.

If the Federal Communications Commission has its way, more single-service cities may choose to follow Allentown's example to put a lid on soaring cable charges. The regulators have been deluged by pleas to let local governments regulate rates. But in a vote that's likely to come next month, the FCC is expected to give only minimal new powers to localities. The FCC prefers that communities use Allentown-style competition instead of regulating monopoly operators. Besides dragging its feet in responding to cable viewers' demands for reregulation, the FCC last year recommended legislation that would encourage localities to authorize second franchises.

TUBE TRUSTS. Congress has shown some interest in the proposal, largely because of a growing number of success stories similar to Allentown's. According to Paul Kagan Associates, a Carmel (Calif.) research firm, at least 65 cities have two competing cable systems (chart). A Consumers' Research magazine survey of 26 of those cities last year found subscribers got more channels and paid 18% less than consumers in monopoly markets.

The trick lies in busting monopolies. Allentown is lucky because it has had two systems from the outset. In the 1970s, city officials simply let two companies--Service Electric Cable TV Inc. and Twin County Cable--build where they wanted. One company started north of town, the other from the south. Eventually, about 95% of the city's 46,000 households were wired--and both services are available in most neighborhoods. Competition is fierce. A road into town is flanked by giant billboards: one for Service Electric, one for Twin County.

It's a lot harder to build a second system atop an existing one. Financing isn't easy to come by, especially if the local banks have loans tied up in the older system. And many cities resist competition. One reason is that local officials and the town's leading citizens often own a piece of the cable system.

Even when that's not the case, local governments rake in big fees from exclusive franchises. New York City, for example, gets $27 million a year in fees from Time Warner Inc. Cable operators probably wouldn't be willing to pay as much if they lost their monopolies. Another worry: Service could suffer if competition hurts the original operator.

RELUCTANT RIVALS. Even if the government grants a second franchise, incumbents don't give up easily. That's what Telesat Cablevision Inc. in Pompano Beach, Fla., found when it entered five Florida markets. Owners of existing systems slashed prices. In Cape Coral, the franchise holder took out newspaper ads saying that construction could damage 700 trees. The squabbling prompted Telesat to file a federal antitrust suit against Cablevision Industries, which says the charges are unfounded.

Despite these impediments, Allentown shows that competition between cable franchises can work. That's a good thing, because other rivals, such as direct-broadcast satellite, so far haven't put up much of a fight. As local governments weigh the best method for ensuring cheap, high-quality cable TV service, they might want to send delegations to Allentown to talk to contented customers like Frank Hanzl.Mark Lewyn in Washington, with Julie Amparano Lopez in Allentown, Pa.


Race, Class, and the Future of Ferguson
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus